Thursday, August 18, 2011

Credit Standards and Segregation
INSEAD Working Paper 2011/87/EPS revised version of 2011/31/EPS

How do credit standards on the mortgage market affect neighborhood choice and the resulting level of urban segregation? We develop a model of neighborhood choice with credit constraints. The model shows that a relaxation of credit standards can either increase or decrease segregation, depending on racial income gaps and on races’ preferences for neighborhoods. We then estimate the effect of the relaxation of credit standards that accompanied the 1995 to 2007 mortgage credit boom on the level of urban and school segregation. Matching a national dataset of mortgage originations with annual racial demographics of each of the public schools in the United States from 1995 to 2007, we find that the relaxation of credit standards has caused an increase in segregation.

OUAZAD Amine, PAGE Lionel
INSEAD Working Paper 2011/88/EPS revised version of 2011/34/EPS

We put forward a new experimental economics design with monetary incentives to estimate students’ perceptions of grading discrimination. We use this design in a large field experiment which involved 1,200 British students in grade 8 classrooms across 29 schools. In this design, students are given an endowment they can invest on a task where payoff depends on performance. The task is a written verbal test which is graded non anonymously by their teacher, in a random half of the classrooms, and graded anonymously by an external examiner in the other random half of the classrooms. We find significant evidence that students’ choices reflect perceptions of biases in teachers’ grading practices. Our results show systematic gender interaction effects: male students invest less with female teachers than with male teachers while female students invest more with male teachers than with female teachers. Interestingly, female students’ perceptions are not in line with actual discrimination: Teachers tend to give better grades to students of their own gender. Results do not suggest that ethnicity and socioeconomic status play a role.