Do lenders price the brown factor in car loans? Evidence from diesel cars

The transition to a green economy strongly depends on the existence of appropriate economic incentives for agents. The loan market for car purchases is a paradigmatic example in this respect, as lenders may set credit conditions which may discourage or support the purchase of high emission vehicles. Using car loan-level data we study whether banks adjust their lending terms and conditions in response to different shocks to the perceived environmental quality of diesel vehicles. Focusing on the impact of the diesel emissions scandal in the automobile sector in 2015 and on local policy changes regarding circulation restrictions due to air pollution, we find that bank lending particularly by captive banks may further reinforce the market and regulatory failures that led to extensive levels of pollution by the automobile sector