Understanding climate gentrification and shifting landscapes of protection and vulnerability in green resilient Philadelphia
2020
Abstract This paper shows that compared to average-looking borrowers, good-looking borrowers have a loan approval rate which is 4 percentage points higher, whereas plain-looking borrowers pay a significantly higher interest rate (1 percentage point higher). However, this beauty premium only exists in concentrated markets where banks have enough market power to discriminate against the plain-looking borrowers or to show favor toward the good-looking. Once competition intensifies, the beauty premium disappears. Therefore, promoting banking market competition could considerably enhance the efficient allocation of credit by mitigating taste-based favoritism.
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