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

Taylor A. Begley (), Umit G. Gurun (), Amiyatosh Purnanandam and Daniel Weagley
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Taylor A. Begley: John Maze Stewart Department of Finance and Quantitative Methods, Gatton College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506
Umit G. Gurun: Jindal School of Management, University of Texas at Dallas, Dallas, Texas 75080

Management Science, 2024, vol. 70, issue 12, 8484-8505

Abstract: 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.

Keywords: credit access; discrimination; government lending; unintended consequences; income inequality (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:12:p:8484-8505

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