Collier estimates the causal effect of emergency credit on households’ finances after a negative shock. He links application data from the U.S. Federal Disaster Loan program, which provides loans to households that have uninsured damages from a federally-declared natural disaster, to a panel of credit records before and after the shock. He exploits a discontinuity in the loan approval rules that led applicants with debt-to-income ratios below 40% to be differentially likely to be approved. Using an instrumented difference-in-differences research design, he finds that credit provision at the time of a shock significantly reduces severe financial distress, decreasing the likelihood of filing for bankruptcy by 61% in the three years following the disaster. He explores mechanisms using additional quasi-experimental variation in interest rates, finding support for a liquidity-based explanation. Credit provision in a time of crisis has real consumption effects in the form of additional car purchases even 3 years after loan receipt. His findings suggest that well-timed liquidity provided to households in acute need can have substantial and persistent positive effects.
Bio:
Benjamin Collier is an Associate Professor of Risk Management and Insurance and a Tuttleman Research Fellow in the Fox School of Business at Temple University. His research focuses on sustainability and severe climate risks. Specifically, he examines how businesses and households financially manage hurricanes and other severe events. He has published in Econometrica, the Journal of Risk and Insurance, and the Journal of Quantitative and Financial Analysis, among other outlets. His research has been covered in media outlets including the Wall Street Journal, Bloomberg, Marketplace, and the Harvard Business Review.