Publications
Publications
- 2023
- 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
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. Accepted at The Review of Economics and Statistics.)