The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses
What happens when public resources are allocated by private actors, whose objectives may be imperfectly aligned with public goals? We study this question in the context of the Paycheck Protection Program (PPP), which relied on private banks to rapidly disburse aid to small businesses. We present a model suggesting that such delegation is optimal if delay is very costly, the variance of the impact of funds across firms is small, and the correlation between public and private objectives is high. We then use firm-level data to measure heterogeneity in the impact of PPP and to assess whether banks targeted loans to high-impact firms. Using an instrumental variables approach, we find that PPP loans increased business’s expected survival rates by 9 to 22 percentage points and modestly boosted employment. While banks did target loans to their pre-existing customers, treatment effect heterogeneity is sufficiently modest and the correlation between bank and public objectives seems sufficiently strong that delegation could still have been optimal given the high costs of delay.
We thank Karen Mills for connecting us to Alignable and Alignable’s founders for providing data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Edward L. Glaeser
I have received speaking fees from organizations that organize members that invest in real estate markets, including the National Association of Real Estate Investment Managers and the Pension Real Estate Association.