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

Author

Listed:
  • 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)

  • Amiyatosh Purnanandam

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Daniel Weagley

    (Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308)

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.

Suggested Citation

  • Taylor A. Begley & Umit G. Gurun & Amiyatosh Purnanandam & Daniel Weagley, 2024. "Disaster Lending: “Fair” Prices but “Unfair” Access," Management Science, INFORMS, vol. 70(12), pages 8484-8505, December.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:12:p:8484-8505
    DOI: 10.1287/mnsc.2021.03199
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