The curse of the more trustworthy gender

It sucks to be a female entrepreneur. You are more likely to repay your loan, but you still keep getting smaller loans. As a consequence, your business is smaller than that of your male counterparts. Of course, all this could be due to some common correlates that cause women to be more trustworthy and yet get smaller loans. Or it could be just plain and simple discrimination.

Isabelle Agier and Ariane Szafarz test the latter hypothesis using rich data from microfinance in Brazil. The idea is to verify whether women are discriminated against in the loan application process. Testing for discrimination is not easy as apparent inequities may make economic sense. But if across to populations a lower or equal loan default rate is associated to a higher or equal loan denial rate, then we have an ethical issue. This what Agier and Szafarz test. Sadly, the news are not good. There is significant discrimination and despite being better creditors, they get smaller loans. Even worse, repeat applicants who could thus prove their trustworthiness get even more discriminated. Of course, there could still be some unobserved variable explaining all this, but I cannot imagine what that could be.