Disaster Lending: “Fair” Prices but “Unfair” Access

We find the Small Business Administration’s disaster-relief home loan program denies significantly more loans in areas with larger shares of minorities, subprime borrowers, and higher income inequality. We find that risk-insensitive loan pricing, a feature present in many regulated and government-ru...

Full description

Saved in:
Bibliographic Details
Published in:Management science 2024-12, Vol.70 (12), p.8484-8505
Main Authors: Begley, Taylor A., Gurun, Umit G., Purnanandam, Amiyatosh, Weagley, Daniel
Format: Article
Language:English
Subjects:
credit access
discrimination
government lending
income inequality
unintended consequences
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We find the Small Business Administration’s disaster-relief home loan program denies significantly more loans in areas with larger shares of minorities, subprime borrowers, and higher income inequality. We find that risk-insensitive loan pricing, a feature present in many regulated and government-run lending programs, is an important driver of these disparities in access to credit. The differences in denial rates are disproportionately high compared with private-market lending and government-insured risk-sensitive loan pricing programs. Thus, despite ensuring “fair” prices, the use of risk-insensitive pricing may lead to “unfair” access to credit. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.03199 .
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2021.03199