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Risk-sharing, altruism, and the factor structure of consumption

  • Fumio Hayashi
  • Joseph Altonji
  • Laurence Kotlikoff

We consider four models of consumption that differ with respect to efficient risk-sharing and altruism. They range from complete markets with altruism to family risk-sharing. We use a matched sample of parents and independent children available from the Panel Study of Income Dynamics to discriminate between the four models. Our testing procedure is designed to deal with the set of observed independent children being endogenously selected. The combined hypothesis of complete markets and altruism can be decisively rejected, while we fail to reject altruism and hence family risk-sharing for a subset of families.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 48.

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Date of creation: 1991
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Handle: RePEc:fip:fedmem:48
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  1. Sumru Altug & Robert A. Miller, 1987. "Household choices in equilibrium," Working Papers 341, Federal Reserve Bank of Minneapolis.
  2. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  3. John H. Cochrane, 1988. "A Test of Consumption Insurance," NBER Working Papers 2642, National Bureau of Economic Research, Inc.
  4. Wright, Randall D., 1987. "Market structure and competitive equilibrium in dynamic economic models," Journal of Economic Theory, Elsevier, vol. 41(1), pages 189-201, February.
  5. Lars Peter Hansen & Thomas J. Sargent, 1990. "Recursive Linear Models of Dynamic Economies," NBER Working Papers 3479, National Bureau of Economic Research, Inc.
  6. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  7. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  8. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  9. Altonji, Joseph G & Siow, Aloysius, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 293-328, May.
  10. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
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