Disability benefits: uncertainty, waiting times and consumption smoothing

Applicants for disability benefits face a long wait for a decision, and uncertainty in how long the wait will last and its resolution – award or rejection. Both forms of uncertainty creates a substantial barrier to smoothing consumption. Using transaction-level bank data on UK disability benefit recipients, and instrumenting waiting time with variation in local assessment centre backlogs, we find that applicants do not spend in anticipation of an award, even when they have liquidity. At approval, spending on durables spikes sharply, while total spending increases to a permanently higher level. We build a calibrated model with durable and non-durable goods to match these patterns, and use it to illustrate the welfare cost of delayed resolution, including how much benefit income individuals would be willing to forgo in exchange for a faster decision. Finally, these costs are not offset by better targeting; we find no evidence that longer waits improve screening of applicants.