Overcoming Information Asymmetries in Low-Income Lending: Lessons from the "Working Wheels" Program

This study analyzes the role of relationship lending in the automobile credit market among a population generally perceived to be high risk - and thereby 'unlendable'. Using a unique dataset from the Vermont Development Credit Union's "Working Wheels" low-income car loan program, we find that the strength of the relationship between creditor and higher risk borrowers significantly raises the probability of loan approval, and that such borrowers who receive loans are relatively creditworthy. Specifically, for applicants without credit scores, we find that -- in addition to income and debt ratio -- age and the nature of the established relationship with the lender significantly affect the probability of loan approval. By contrast, for applicants with credit scores, only income, debt ratio and the credit score are the significant determinants. In addition, despite the greater information asymmetry associated with applicants whose credit histories are unknown, we find no significant difference in delinquency rates between those with and without credit scores. In the current climate of welfare reform, we conclude that policymakers should consider programs that encourage welfare recipients to establish relationships with traditional financial institutions and establish more programs like "Working Wheels" that facilitate access to affordable credit for automobiles.low-income lending, relationship lending, information asymmetries, automobile loans, credit-rationing

Overcoming Information Asymmetries in Low-Income Lending: Lessons from the 'Working Wheels' Program

Without access to reliable transportation, the welfare-to-work transition for low-income households is nearly impossible, yet very little is known about the effectiveness of targeted loan programs designed to improve their access to credit. Since 1998, Vermont's TANF funds have been used to provide automobile loans to low-income residents through the "Working Wheels" program of the Vermont development Credit Union. In this paper, we take advantage of unique micro-level data on Working Wheels loan applications and loan performance to explore how such programs can cost-effectively provide car loans to those who are unable to obtain affordable loans elsewhere. Our results verify the importance of relationship lending, particularly among those without documented credit histories. In the presence of pronounced information asymmetries about credit history, our results justify a loan officer's increased trust in a client with whom the bank has had a stronger relationship; such clients, ceteris paribus, are less likely to default. We conclude that in the current climate of welfare reform, policymakers should consider programs that encourage welfare recipients to establish and maintain relationships with financial institutions in order to facilitate access to affordable credit and to minimize the risk of loan default.low-income lending, relationship lending, information asymmetries, automobile loans, credit-rationing, social capital

GENDER AND GRADUATE ECONOMICS EDUCATION IN THE US

This paper reports on the ?ndings of a survey of top economics graduate schools as they relate to women and men. The results provide strong evidence that at these top graduate schools, women graduate students are less integrated in their economic disciplines than are male graduate students. In the second part of the paper, this paper relates those ?ndings to alternative theories as to why this is the case. This paper concludes by suggesting that the emphasis on theoretical studies in the current core of the graduate economics program can be seen as a type of hazing process that seems to have a signi?cant cost since many women (and men) with great creative promise are discouraged from continuing in economics and do not bene?t nearly as much as they would have from more policy-driven core courses.

The Impact of Stereotype Threat on the Social Self-Efficacy and Academic Performance of Mexican Immigrants

Mexican immigrants living in the United States face academic challenges as well as being exposed to stereotypes. Additionally, Mexican immigrants tend to report lower self-efficacy compared to their American counterparts. This quantitative study aimed to fill a gap in the literature by examining the impact that stereotype threat (STT) has on Mexican immigrants\u27 academic performance and social self-efficacy using a two-way between subjects design. Self-efficacy theory and stereotype threat theory provided the theoretical foundation for the study. Caucasian and Mexican immigrants were randomly assigned to one of two groups- a group exposed to STT (Caucasian n = 94, Mexican immigrant n = 10) or a group who was not exposed to STT (Caucasian n = 155, Mexican immigrant n = 21) for a total of N = 280. All participants were given quantitative analysis questions, analytical reasoning questions, and a social self-efficacy questionnaire. Results showed that Mexican immigrants in the stereotype threat group and Mexican immigrants in the no threat group underperformed on the quantitative analysis and analytical reasoning measures compared to Caucasians in both of those groups. Mexican immigrants in the stereotype threat group and the no threat group also reported lower social self-efficacy scores compared to Caucasians. This research highlighted the importance of the impact stereotypes may have on academic performance and social self-efficacy, especially among immigrants. The implications for social change include insight for Mexican immigrants about the types of challenges they may encounter upon moving to the United States. Additionally, this research could extend the conversation about the various negative effects that stereotypes may have on immigrants\u27 lives

Charity Auctions: A Field Experimental Investigation

Auctions are a popular way to raise money for charities, but relatively little is known, either theoretically or empirically, about the properties of charity auctions. The small theoretical literature suggests that the all-pay auction should garner more money than winner-pay auctions. We conduct field experiments to test which sealed bid format, first price, second price or all-pay raises the most money. Our experiment suggests that both the all-pay and second price formats are dominated by the first price auction. Our design also allows us to identify differential participation as the source of the difference between existing theory and the field. To conclude, we show that a model of charity auctions augmented by an endogenous participation decision predicts the revenue ordering that we see in the field.

Endogenous Participation in Charity Auctions

Data from a recent ?eld experiment suggests that differences in participation rates are responsible for much of the variations in revenues across formats in charity auctions. We provide a theoretical framework for the analysis of this, and other related, results. The model illustrates the limits of previous "?xed" results and introduces some new considerations to the choice of auction mechanism. It also implies, however, that the data cannot be explained in terms of participation costs alone: there must exist mechanism-speci?c obstacles to participation.

An Assessment of Experimental Debris-Flow Scaling Relationships

This research tests empirically the theoretical assumption that scaling issues make small-scale flume debris flows unrepresentative of natural debris flows. Here, results from a small-scale debris-flow flume (8 m long, 0.2 m wide) were compared with similar experiments carried out using a large-scale USGS flume (95 m long, 2 m wide) and field observations. In total, 40 experiments were carried out at different slope angles (29, 30, and 31) and different viscosities (from 0.001 Pa.s to 0.005 Pa.s) to provide a quantitative analysis of scaling relationships of debris flows of different sizes. Dimensionless parameters, used for assessing debris-flow scaling, were typically within the range of natural debris flows: The Bagnold number was 73 – 1.9x104, the Savage number was 2x10-1 – 2.4x102, and the Friction number was 8x101 – 4.7x103. The Savage number was larger than expected based on USGS data, but this is attributed to the larger value for grain-size/flow-depth. Inherent variability of debris-flow behaviour was highlighted in the basic characteristics such as mean deposit length (150.30±44.96 cm), mean width (50.104.86 cm), and mean velocity (3.881.35 m s-1). Therefore, initial conditions are insufficient to make accurate predictions of debris-flow behaviour. There was considerable variation in flow behaviour with small changes in slope angle and viscosity. With each 1 degree change in slope, flow velocity increased by an average of 1.06 m s-1 and runout distance increased by an average of 16.35 cm. Small changes in viscosity (±0.002 Pa.s) altered the debris-flow rheology to such an extent that no lateral levees formed. Such effects can only be investigated in small-scale flumes which are free from the constraints of large flume models where initial conditions are difficult to vary. Compared to natural and USGS flume debris flows, the reduced-scale debris-flow model used here provides results which broadly reproduce the behaviour of natural debris flows