Measuring the Mechanisms of Informal Family Insurance Michael Dalton Daniel LaFave Bureau of Labor Statistics Colby College May 2016* Abstract This paper uses recently collected data on inter-vivos transfers between parents and their adult children to illustrate informal risk sharing and insurance. By focusing on poor health as a motivation for family transfers and linking data on noncoresident households that are part of common extended families, we show how relatives’ deteriorating health leads to an increase in both time and monetary transfers and explore the effects of the underlying exchange in both sending and receiving households. In the context of incompletely insured consumption, the data illustrates both up and downstream transfers to family members in need and stresses the impact that transfers and health have on labor supply and asset holdings throughout an extended family. * Dalton:
[email protected]; 2 Massachusetts Ave NE, Room 4945, Washington, DC 20212; Phone: 202- 691-7403. LaFave:
[email protected]; 5243 Mayflower Hill, Waterville, ME 04901. The authors gratefully acknowledge comments from Patrick Coate, V. Joseph Hotz, Duncan Thomas, and Emily Wiemers along with funding from the National Institute on Aging P01 AG029409 through the PSID Small Grants program. I. Introduction A significant body of literature highlights the importance of noncoresident family members in decision making, risk sharing, and providing informal insurance in times of need (e.g. McGarry and Schoeni, 1995; Lundberg and Pollak, 2007). However, prior analysis has been limited by an inability to disentangle the mechanisms underlying patterns of family assistance due to a lack of data identifying the source and destination of monetary and time transfers between extended family members.