INSURANCE IN EXTENDED FAMILY NETWORKS By

We investigate partial insurance and group risk sharing in extended family networks. Our approach is based on decomposing income shocks into group aggregate and idiosyncratic components, allowing us to measure the extent to which each is insured, having accounted for public insurance programs. We apply our framework to extended family networks in the United States by exploiting the unique intergenerational structure of the PSID. We find that over 60% of shocks to household income are potentially insurable within family networks. However, we find little evidence that the extended family provides insurance for such idiosyncratic shocks. ∗Orazio Attanasio: [email protected], Costas Meghir: [email protected], Corina Mommaerts: [email protected]. We thank Joseph Altonji, Richard Blundell, Dirk Krueger, Ross Milton, Emily Nix, Alessandra Voena, and participants at the NBER Summer Institute 2013 Macro Public Finance Workshop and the ARIA 2014 Annual Meeting. We thank Luigi Pistaferri for generously providing imputed consumption data. Support from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (CPP) at the IFS, reference RES544-28-0001, is gratefully acknowledged. Orazio Attanasio thanks the ESRC Professorial Fellowship ES/K010700/1 and the ESRC CPP centre for financial support. Costas Meghir thanks the ISPS and the Cowles foundation at Yale for financial assistance. Corina Mommaerts thanks the NSF Graduate Research Fellowship for support. The usual disclaimers apply.