Screen Now, Save Later? The Trade-Off between Administrative Ordeals and Fraud

Shan Aman-Rana (), Daniel W. Gingerich and Sandip Sukhtankar

No 31364, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Screening requirements are common features of fraud and corruption mitigation efforts around the world. Yet imposing these requirements involves trade-offs between higher administrative costs, delayed benefits, and exclusion of genuine beneficiaries on one hand and lower fraud on the other. We examine these trade-offs in one of the largest economic relief programs in US history: the Paycheck Protection Program (PPP). Employing a database that includes nearly 11.5 million PPP loans, we assess the impact of screening by exploiting temporal variation in the documentation standards applied to loan applications for loans of different values. We find that screening significantly reduced the incidence and magnitude of various measures of loan irregularities that are indicative of fraud. Moreover, our analysis reveals that a subset of borrowers with a checkered history strategically reduced their loan application amounts in order to avoid being subjected to screening. Borrowers without a checkered history engaged in this behavior at a much lower rate, implying that the documentation requirement reduced fraud without imposing an undue administrative burden on legitimate firms. All told, our estimates imply that screening led to a reduction in losses due to fraud equal to at least $744 million.

JEL-codes: D22 D73 G38 H25 H32 H81 (search for similar items in EconPapers)
Date: 2023-06
Note: PE
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