Stratified Sample Design for Fair Lending Binary Logit Models
Logistic regressions are commonly used to assess for fair lending across groups of loan applicants. This paper considers estimation of the disparate treatment parameter when the sample is stratified jointly by loan outcome and race covariate. We use Monte Carlo analysis to investigate the finite-sample properties of two estimators of the disparate treatment parameter under six stratified sampling designs and three data generating processes; one estimator is consistent irrespective of sample design while the other is not. Unfortunately the inconsistent estimator is employed inadvertently in fair lending studies. We demonstrate the gains in using the consistent estimator as well as providing recommendations on sample design. We also study the effect of sample design on the empirical power of a test for statistical significance of the disparate treatment parameter. We recommend adopting a sample design that approximately balances by outcome and racial group, when using the estimator that adjusts for the stratification scheme. However, if the standard logit estimator is employed, then our results suggest a sample design that balances by outcome and allocates across racial groups proportionally to the population. Though our study is framed in terms of fair lending applications, our results apply generally to the estimation of logistic regressions that use stratified or choice-based sample designs.
|Date of creation:||30 Jul 2000|
|Date of revision:|
|Contact details of provider:|| Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2|
Web page: http://web.uvic.ca/econ
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James J. Heckman, 1998. "Detecting Discrimination," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 101-116, Spring.
- Alicia H. Munnell, 1992.
"Mortgage lending in Boston: interpreting HMDA data,"
92-7, Federal Reserve Bank of Boston.
- Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
- Mitchell Stengel & Dennis Glennon, 1999. "Evaluating Statistical Models of Mortgage Lending Discrimination: A Bank-Specific Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 299-334.
- Harrison, Glenn W, 1998. "Mortgage Lending in Boston: A Reconsideration of the Evidence," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 29-38, January.
- Stanley D. Longhofer & Stephen R. Peters, 1998. "Self-selection and discrimination in credit markets," Working Paper 9809, Federal Reserve Bank of Cleveland.
- Day, Theodore E & Liebowitz, S J, 1998. "Mortgage Lending to Minorities: Where's the Bias?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 3-28, January.
- Cosslett, Stephen R, 1981. "Maximum Likelihood Estimator for Choice-Based Samples," Econometrica, Econometric Society, vol. 49(5), pages 1289-1316, September.
- Calem Paul & Stutzer Michael, 1995. "The Simple Analytics of Observed Discrimination in Credit Markets," Journal of Financial Intermediation, Elsevier, vol. 4(3), pages 189-212, July.
- Paul S. Calem & Michael J. Stutzer, 1995. "The simple analytics of observed discrimination in credit markets," Working Papers 95-7, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:vic:vicewp:0007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Giles)
If references are entirely missing, you can add them using this form.