The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses

78 Pages Posted: 4 Aug 2020 Last revised: 5 Jul 2021

See all articles by Alexander Bartik

Alexander Bartik

University of Illinois at Urbana-Champaign - Department of Economics

Zoe Cullen

Harvard University - Business School (HBS)

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

Michael Luca

Harvard University - Business School (HBS)

Christopher Stanton

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Aditya Sunderam

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2020

Abstract

What happens when public resources are allocated by private actors, whose objectives may be imperfectly aligned with public goals? We study this question in the context of the Paycheck Protection Program (PPP), which relied on private banks to rapidly disburse aid to small businesses. We present a model suggesting that such delegation is optimal if delay is very costly, the variance of the impact of funds across firms is small, and the correlation between public and private objectives is high. We then use firm-level data to measure heterogeneity in the impact of PPP and to assess whether banks targeted loans to high-impact firms. Using an instrumental variables approach, we find that PPP loans increased business’s expected survival rates by 9 to 22 percentage points and modestly boosted employment. While banks did target loans to their pre-existing customers, treatment effect heterogeneity is sufficiently modest and the correlation between bank and public objectives seems sufficiently strong that delegation could still have been optimal given the high costs of delay.

Suggested Citation

Bartik, Alexander and Cullen, Zoe and Glaeser, Edward L. and Luca, Michael and Stanton, Christopher and Sunderam, Aditya, The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses (July 2020). NBER Working Paper No. w27623, Available at SSRN: https://ssrn.com/abstract=3665894

Alexander Bartik (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

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Zoe Cullen

Harvard University - Business School (HBS) ( email )

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Edward L. Glaeser

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Michael Luca

Harvard University - Business School (HBS) ( email )

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Christopher Stanton

Harvard University - Business School (HBS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Aditya Sunderam

Harvard University ( email )

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