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- Title
Measuring Bias in Consumer Lending.
- Authors
Dobbie, Will; Liberman, Andres; Paravisini, Daniel; Pathania, Vikram
- Abstract
This article tests for bias in consumer lending using administrative data from a high-cost lender in the U.K. We motivate our analysis using a new principal-agent model of bias where loan examiners are incentivized to maximize a short-term outcome, not long-term profits, leading to bias against illiquid applicants at the margin of loan decisions. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners, finding significant bias against immigrant and older applicants when using the firm's preferred measure of long-run profits but not when using the short-run measure used to evaluate examiner performance. In this case, market incentives based on characteristics that vary across groups lead to inefficient group-based bias.
- Subjects
CONSUMER lending; MORAL hazard; PAYDAY loans; MONEYLENDERS
- Publication
Review of Economic Studies, 2021, Vol 88, Issue 6, p2799
- ISSN
0034-6527
- Publication type
Article
- DOI
10.1093/restud/rdaa078