Racial Discrimination in Residential Lending Markets: Why Empirical Researchers Always See It and Economic Theorists Never Do

A fundamental disagreement exists between empirical researchers who have evaluated home mortgage market data and mainstream microeconomists who have theorized about discrimination in credit markets. Empirical researchers see evidence of racial discrimination in virtually every study they conduct. They argue that whether one looks at the disparity between black and white applicant rejection rates, the shares of loans going to black and white neighborhoods, the number of banks in these neighborhoods, results from regression analysis, or a variety of other measures, the result is the same: residential mortgage markets are characterized by large racial disparities that are neither explained by income nor other economic and social variables. In short, these researchers conclude that these disparities constitute evidence of racial discrimination. Conversely, economic theorists never see evidence of racial discrimination in the