Competition and Favoritism in Bank Loan Markets
2018 AEA meeting paper, Philadelphia
28 Pages Posted: 28 Nov 2017 Last revised: 2 Jun 2020
Date Written: September 1, 2017
This paper analyzes costly favoritism related to physical attractiveness and gender in bank loan markets using a market structure-based method. The rationale is that a concentrated market provides more space for loan officers to discriminate against a certain group of borrowers. Using several unique datasets and online maps containing information on market structure and household finance, we find that loan officers prefer good-looking people and males in relatively risky commercial/industrial loan markets. On the other hand, females and especially young good-looking females have an advantage in mortgage loan markets. Although the disadvantage of bearing and raising children cannot be easily disentangled from discrimination in labor markets, it does not pose an issue in mortgage loan markets. We interpret these different patterns of favoritism as a result of differential risk levels associated with the two types of loans.
Keywords: market structure; bank loan; favoritism; discrimination; beauty; gender
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