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Is Lending Discrimination Always Costly?

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Abstract

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, even in a competitive market. Second, tests for lending discrimination based on profits (or default rates) may be unable to detect discrimination when it exists.

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Authors and Affiliations

  1. Department of Finance, College of Business Administration, University of Cincinnati, Cincinnati, OH, 45221-0195

    Michael F. Ferguson

  2. Department of Finance, University of Illinois, Champaign, IL, 61820

    Stephen R. Peters

Authors
  1. Michael F. Ferguson
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  2. Stephen R. Peters
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Ferguson, M.F., Peters, S.R. Is Lending Discrimination Always Costly?. The Journal of Real Estate Finance and Economics 21, 23–44 (2000). https://doi.org/10.1023/A:1007809318988

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