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Self-selection and discrimination in credit markets

Author

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  • Stanley D. Longhofer
  • Stephen R. Peters

Abstract

This paper increases understanding of the causes and consequences of discrimination in credit markets. It develops an underwriting model in which lenders use a simple Bayesian updating process to evaluate applicant creditworthiness. It also models individuals' self-selection behavior to show how market frictions can affect application decisions.

Suggested Citation

  • Stanley D. Longhofer & Stephen R. Peters, 1998. "Self-selection and discrimination in credit markets," Working Papers (Old Series) 9809, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:9809
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    References listed on IDEAS

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    3. Michael Ferguson & Stephen Peters, 1997. "Cultural Affinity and Lending Discrimination: The Impact of Underwriting Errors and Credit Risk Distribution on Applicant Denial Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 153-168, February.
    4. James J. Heckman, 1998. "Detecting Discrimination," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 101-116, Spring.
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    Cited by:

    1. 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.).
    2. Judith A. Giles & Marsha J. Courchane, 2000. "Stratified Sample Design for Fair Lending Binary Logit Models," Econometrics Working Papers 0007, Department of Economics, University of Victoria.

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    Keywords

    Mortgages; Discrimination in consumer credit;

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