Information Frictions and Access to the Paycheck Protection Program

Cowles Foundation Discussion Paper 2247

NYU Stern School of Business

68 Pages Posted: 7 Aug 2020

See all articles by John Eric Humphries

John Eric Humphries

Yale University, Department of Economics

Christopher Neilson

New York University (NYU) - Leonard N. Stern School of Business; Princeton University - Woodrow Wilson School of Public and International Affairs

Gabriel Ulyssea

University of Oxford - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 27, 2020

Abstract

The Paycheck Protection Program (PPP) extended 669 billion dollars of forgivable loans in an unprecedented effort to support small businesses affected by the COVID-19 crisis. This paper provides evidence that information frictions and the “first-come, first-served” design of the PPP program skewed its resources towards larger firms and may have permanently reduced its effectiveness. Using new daily survey data on small businesses in the U.S., we show that the smallest businesses were less aware of the PPP and less likely to apply. If they did apply, the smallest businesses applied later, faced longer processing times, and were less likely to have their application approved. These frictions may have mattered, as businesses that received aid report fewer layoffs, higher employment, and improved expectations about the future.

Keywords: COVID-19, Small business, Information frictions, CARES Act

JEL Classification: H0, J01, J08

Suggested Citation

Humphries, John Eric and Neilson, Christopher and Ulyssea, Gabriel, Information Frictions and Access to the Paycheck Protection Program (July 27, 2020). Cowles Foundation Discussion Paper 2247, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3667636 or http://dx.doi.org/10.2139/ssrn.3667636

John Eric Humphries (Contact Author)

Yale University, Department of Economics ( email )

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Christopher Neilson

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Suite 9-160
New York, NY NY 10012
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Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Gabriel Ulyssea

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

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