Raimundo Undurraga, CEA-U. de Chile

Sala 209

“Bad Taste: Gender Discrimination in the Consumer Credit Market”

Coautoreado con Ana María Montoya, Eric Parrado y Alex Solís

Abstract: When evaluating observably similar loan applications from men and women, do loan officers favor men? We randomly assigned loan requests of variable amounts to a balanced sample of male and female prospective borrowers who then submitted the assigned loan requests to randomly assigned loan officers in Chile. We find that loan requests submitted by women are 14.8% less likely to be approved compared to otherwise equivalent loan requests submitted by men even though official statistics show that women in Chile have higher repayment rates than men. In a corollary experiment we explore whether gender discrimination is due to inaccurate statistical discrimination among loan officers, for which we implement a treatment aimed at “correcting” loan officers’ biased beliefs through the provision of actual information on the repayment performance of male and female borrowers. The treatment is found to be ineffective, suggesting taste-based discrimination. By eliciting gender preferences among loan officers we show that male-female differences in approval rates are 30% to 32% larger among pro-male officers relative to not-pro-male peers, with most of the effect driven by male pro-male officers. Finally, a model-based test showing that gender discrimination decreases with the requested loan amount is also consistent with the taste-based hypothesis. We estimate that up to 9.9% of expected bank profits are not capitalized due to taste-based discrimination (equivalent to annual forgone profits of $13,400 USD per case), an inefficiency cost equal to the annual wage bill of 1,500 loan officers or 18% of all loan officers working in the Chilean banking system.