Measuring Bias in Consumer Lending

89 Pages Posted: 25 Nov 2019

See all articles by Will Dobbie

Will Dobbie

Harvard University - Harvard Kennedy School (HKS)

Andres Liberman

New York University (NYU) - Department of Finance

Daniel Paravisini

London School of Economics & Political Science (LSE)

Vikram Pathania

University of Sussex - Department of Economics

Date Written: July 1, 2019

Abstract

This paper tests for bias in consumer lending using administrative data from a high-cost lender in the United Kingdom. We motivate our analysis using a new principal-agent model of bias, which predicts that profits should be higher for the most illiquid loan applicants at the margin if loan examiners are biased. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners. Consistent with our model, we find 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.

Keywords: Discrimination, Consumer Credit

Suggested Citation

Dobbie, Will and Liberman, Andres and Paravisini, Daniel and Pathania, Vikram, Measuring Bias in Consumer Lending (July 1, 2019). HKS Working Paper No. RWP19-029. Available at SSRN: https://ssrn.com/abstract=3491853 or http://dx.doi.org/10.2139/ssrn.3491853

Will Dobbie (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Andres Liberman

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~aliberma/

Daniel Paravisini

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Vikram Pathania

University of Sussex - Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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