Review of Economic Studies Vol. 88 No. 6 2021
Measuring Bias in Consumer Lending
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.
- DOI
- 10.1093/restud/rdaa078
- Volume
- 88
- Issue
- 6
- Pages
- 2799-2832
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref