Christopher Neilson, John Eric Humphries and Gabriel Ulyssea, "Information frictions and access to the Paycheck Protection Program" (Journal of Public Economics) (Internet Archive copy of Dec. 30, 2024)

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The article page for "Information frictions and access to the Paycheck Protection Program" by Christopher Neilson, John Eric Humphries and Gabriel Ulyssea, Journal of Public Economics, Volume 190, October 2020, 104244. The abstract states that the PPP extended 669 billion dollars of forgivable loans and that information frictions and the "first-come, first-served" design skewed its resources toward larger firms. Using new daily survey data, the authors report that the smallest businesses were less aware of the PPP, less likely to apply, applied later, faced longer processing times and were less likely to be approved. The highlights state that getting a PPP loan was associated with later reporting more employees and lower probabilities of closure or bankruptcy.

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Journal of Public Economics

Volume 190 , October 2020 , 104244

Information frictions and access to the Paycheck Protection Program ☆

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https://doi.org/10.1016/j.jpubeco.2020.104244 Get rights and content

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Highlights

- • Information frictions and Paycheck Protection Program's "first-come, first-served" design disadvantaged the smallest businesses.
- • Firm's expectations about the future deteriorated rapidly in the three to four weeks following the passing of the CARES Act.
- • Smaller businesses had lower awareness of government programs that could help their business during the COVID-19 crisis.
- • Smaller businesses were less likely to apply to the PPP, and they were less likely to report having their application approved.
- • Getting a PPP loan was associated with later reporting more employees and lower probabilities of closure or bankruptcy.

Abstract

The Paycheck Protection Program (PPP) extended 669 billion dollars of forgivable loans in an unprecedented effort to support small businesses affected by the COVID-19 crisis. This paper provides evidence that information frictions and the “first-come, first-served” design of the PPP program skewed its resources towards larger firms and may have permanently reduced its effectiveness. Using new daily survey data on small businesses in the U.S., we show that the smallest businesses were less aware of the PPP and less likely to apply. If they did apply, the smallest businesses applied later, faced longer processing times, and were less likely to have their application approved. These frictions may have mattered, as businesses that received aid report fewer layoffs, higher employment, and improved expectations about the future.

Keywords

COVID-19

Small business

Information frictions

CARES Act

Cited by (0)

☆

We would like to thank Princeton University's Industrial Relations Section and Yale University's Tobin Center for Economic Policy for supporting this work. We would also like to thank Mariel Bedoya, Michael Borger, Iliana Cabral, Franco Calle, Alvaro Carril, Alejadrina Correa, Richard De Thorpe, Deniz Dutz, Maria Elena Guerrero, Isabel Jacas, Katherine Kwok, Manuel Martinez, Cecilia Moreira, Naomi Shimberg, Ignacio Riveros, Eduardo Vargas, and Yagmur Yuksel for helpful research assistance on this project.

© 2020 The Authors. Published by Elsevier B.V.

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