TY  - JOUR
AU  - Nishiyama,Shinichi
AU  - Smetters,Kent
TI  - Ricardian Equivalence with Incomplete Household Risk Sharing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8851
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8851
L1  - http://www.nber.org/papers/w8851.pdf
N1  - Author contact info:
Shinichi Nishiyama
Department of Risk Management and Insurance
Georgia State University
35 Broad Street
Atlanta, GA 30303
E-Mail: shinichi.nishiyama@cbo.gov

Kent Smetters
University of Pennsylvania
SH-DH 3303
3620 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-9811
Fax: 215/898-0310
E-Mail: smetters@wharton.upenn.edu
AB  - Several important empirical studies (e.g., Altonji, Hayashi, and Kotlikoff, 1992, 1996, 1997) find that households are not altruistically-linked in a way consistent with the standard Ricardian model, as put forward by Barro (1974). We build a two-sided altruistic-linkage model in which private transfers are made in the presence of two types of shocks: an 'observable' shock that is public information (e.g., public redistribution) and an 'unobservable' shock that is private information (e.g., idiosyncratic wages). Parents and children observe each other's total income but not each other's effort level. In the second-best optimum, unobservable shocks are only partially shared whereas, for any utility function satisfying a condition derived herein, observable shocks are fully shared. The model, therefore, can generate the low degree of risk sharing found in the recent studies, but Ricardian equivalence still holds.
ER  -