Law & Economics Working Papers
This paper assesses the importance of adverse health shocks as triggers of bankruptcy filings. We view car crashes as a proxy for health shocks and draw on a large sample of police crash reports linked to hospital admission records and bankruptcy case files. We report two findings: (i) there is a strong positive correlation between an individual's pre-shock financial condition and his or her likelihood of suffering a health shock, an example of behavioral consistency; and (ii) after accounting for this simultaneity, we are unable to identify a causal effect of health shocks on bankruptcy filing rates. These findings emphasize the importance of risk heterogeneity in determining financial fragility, raise questions about prior studies of "medical bankruptcy," and point to important challenges in identifying the triggers of consumer bankruptcy. JEL Codes: D12, D14, K35.
Edward Morrison, Arpit Gupta, Lenora Olson & Lawrence Cook, "Health and Financial Fragility: Evidence from Car Crashes and Consumer Bankruptcy" (Coase-Sandor Institute for Law & Economics Working Paper No. 655, 2013).