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  • 2023
  • Working Paper
  • HBS Working Paper Series

When Should Public Programs Be Privately Administered? Theory and Evidence from the Paycheck Protection Program

By: Alexander Bartik, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton and Adi Sunderam
  • Format:Print
  • | Language:English
  • | Pages:105
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Abstract

What happens when public resources are allocated by private companies whose objectives may be imperfectly aligned with policy goals? We study this question in the context of the Paycheck Protection Program (PPP), which relied on private banks to disburse aid to small businesses rapidly. Our model shows that delegation is optimal when delay is sufficiently costly, variation across firms in the impact of funds is small, and the alignment between public and private objectives is high. We use novel firm-level survey data that contains information on banking relationships to measure heterogeneity in the impact of PPP and to assess whether banks targeted loans to high-impact firms. Banks did target loans to their most valuable pre-existing customers. However, using an instrumental variables approach that exploits variation in banks’ loan processing speeds, we find that treatment effect heterogeneity is sufficiently moderate, delay is sufficiently costly, and bank and social objectives are sufficiently aligned that delegation was likely superior to delaying loans to improve targeting.

Keywords

Paycheck Protection Program; Targeting; Impact; Entrepreneurship; Health Pandemics; Small Business; Financing and Loans; Outcome or Result; United States

Citation

Bartik, Alexander, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, Christopher Stanton, and Adi Sunderam. "When Should Public Programs Be Privately Administered? Theory and Evidence from the Paycheck Protection Program." Harvard Business School Working Paper, No. 21-021, August 2020. (Revised July 2023.)
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About The Authors

Zoe B. Cullen

Entrepreneurial Management
→More Publications

Michael Luca

Negotiation, Organizations & Markets
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Christopher T. Stanton

Entrepreneurial Management
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Adi Sunderam

Finance
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More from the Authors

    • July 2023
    • American Economic Review

    The Old Boys' Club: Schmoozing and the Gender Gap

    By: Zoë B. Cullen and Ricardo Perez-Truglia
    • June 2023
    • Faculty Research

    Experimenting with Algorithm Resume Screening

    By: Michael Luca, Jesse M. Shapiro, Adrian Obleton, Evelyn Ramirez and Nathan Sun
    • May 2023
    • Faculty Research

    Note on Corporate and Government Reskilling Efforts in Japan

    By: Christopher Stanton and Akiko Kanno
More from the Authors
  • The Old Boys' Club: Schmoozing and the Gender Gap By: Zoë B. Cullen and Ricardo Perez-Truglia
  • Experimenting with Algorithm Resume Screening By: Michael Luca, Jesse M. Shapiro, Adrian Obleton, Evelyn Ramirez and Nathan Sun
  • Note on Corporate and Government Reskilling Efforts in Japan By: Christopher Stanton and Akiko Kanno
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