When Should Public Programs be Privately Administered? Theory and Evidence from the Paycheck Protection Program
Harvard Business School NOM Unit Working Paper No. 21-021
Harvard Business School Entrepreneurial Management Working Paper No. 21-021
105 Pages Posted: 19 Aug 2020 Last revised: 25 Jul 2023
There are 2 versions of this paper
When Should Public Programs Be Privately Administered? Theory and Evidence from the Paycheck Protection Program
When Should Public Programs be Privately Administered? Theory and Evidence from the Paycheck Protection Program
Date Written: July 2023
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.
Suggested Citation: Suggested Citation