Is Lending Discrimination Always Costly?
Posted: 25 Mar 1997
Date Written: March 1997
How can economically costly discrimination persist in a competitive market? Previous research into this question has focused on market imperfections which prevent competitive forces from eliminating the economically costly behavior. In this paper we show that lending discrimination is not always costly (to the lender). This has two important implications. First, lending discrimination may persist indefinitely. Second, tests for lending discrimination based on profits (or default rates) are inadequate.
JEL Classification: G21, G28, D45, J78
Suggested Citation: Suggested Citation