| This paper tries to ascertain whether there is racial discrimination in the consumer credit market, and if there is, what are the possible reasons behind it. The theoretical model shows different outcomes for statistical and taste discrimination. We derived a testable hypothesis from the model, and made some empirical analyses. We used the Survey of Consumer Finances 1998 to 2007 data sets, and found that households with black and Hispanic respondents are discriminated against in the consumer credit market. The results show that the discrimination in the consumer credit market against black and Hispanic households is statistical discrimination: lenders choose to discriminate against black and Hispanic because they on average have higher default risk. |
