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Evidence of Discrimination in Lending: An Extension

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  • Shaffer, Sherrill

Abstract

The author generalizes the model of Michael F. Ferguson and Stephen R. Peters (1995) to allow for unequal recovery rates in the event of default by majority borrowers versus minority borrowers. This simple extension has two direct implications: (1) a uniform credit policy, as defined by Ferguson and Peters, entails cross-subsidization across groups; and (2) it is possible for a profit-maximizing (and therefore economically nondiscriminatory) lending policy to generate lower average default rates among minority borrowers than among majority borrowers. Copyright 1996 by American Finance Association.

Suggested Citation

  • Shaffer, Sherrill, 1996. "Evidence of Discrimination in Lending: An Extension," Journal of Finance, American Finance Association, vol. 51(4), pages 1551-1554, September.
    • Handle: RePEc:bla:jfinan:v:51:y:1996:i:4:p:1551-54
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    Cited by:

    1. Fred Phillips-Patrick & David Malmquist & Clifford Rossi, 1997. "The Economics of Low-Income Mortgage Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 169-188, February.
    2. Shaffer, Sherrill, 1998. "The Winner's Curse in Banking," Journal of Financial Intermediation, Elsevier, vol. 7(4), pages 359-392, October.
    3. Song Han, 2001. "On the Economics of Discrimination in Credit Markets," Finance and Economics Discussion Series 2002-02, Board of Governors of the Federal Reserve System (U.S.).
    4. Song Han, 2004. "Discrimination in Lending: Theory and Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 29(1), pages 5-46, July.
    5. Cole, Rebel, 1999. "Availability of credit to small and minority-owned businesses: Evidence from the 1993 National Survey of Small Business Finances," MPRA Paper 4715, University Library of Munich, Germany.
    6. Anastasia Cozarenco & Ariane Szafarz, 2024. "How to identify lending bias when the lender's goal is not profit?," Working Papers CEB 24-007, ULB -- Universite Libre de Bruxelles.
    7. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.

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