Risk sharing, inequality, and fertility

Roozbeh Hosseini (roozbeh.hosseini@gmail.com), Larry Jones and Ali Shourideh

No 674, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We use an extended Barro-Becker model of endogenous fertility, in which parents are heterogeneous in their labor productivity, to study the efficient degree of consumption inequality in the long run. In our environment a utilitarian planner allows for consumption inequality even when labor productivity is public information. We show that adding private information does not alter this result. We also show that the informationally constrained optimal insurance contract has a resetting property - whenever a family line experiences the highest shock, the continuation utility of each child is reset to a (high) level that is independent of history. This implies that there is a non-trivial, stationary distribution over continuation utilities and there is no mass at misery. The novelty of our approach is that the no-immiseration result is achieved without requiring that the objectives of the planner and the private agents disagree. Because there is no discrepancy between planner and private agents' objectives, the policy implications for implementation of the efficient allocation differ from previous results in the literature. Two examples of these are: 1) estate taxes are positive and 2) there are positive taxes on family size.

Keywords: Taxation; Contracts; Risk (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cta, nep-dev and nep-dge
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Risk Sharing, Inequality, and Fertility (2010)
Working Paper: Risk Sharing, Inequality and Fertility (2009)
Working Paper: Risk Sharing, Inequality and Fertility (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:674

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