Through marriage, individuals can share some risks that would otherwise be uninsurable. In this paper, we ask how much idiosyncratic income risk can be diversified away through marriage contracts alone versus how much risk there remains for public unemployment insurance programs to alleviate. We tackle this question in a dynamic general equilibrium model with heterogeneous agents and intra-household negociation. Individuals differ in gender, accumulated wealth, as well as employment and marriage status. Marriage, divorce, job acceptance and savings decisions are endogenous. Other labor market outcomes are modelled as an exogenous stochastic process matching key US data. The generosity of the unemployment insurance program is determined by voting. We run a series of experiments to contrast the optimal public insurance schemes in worlds with and without marriage possibilities. The impact of moral hazard in the employment market is assessed.
More papers in 2006 Meeting Papers from Society for Economic Dynamics Address: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA Contact information at EDIRC. Series data maintained by Christian Zimmermann ().