Life Insurance and Household Consumption

Joint with: Jay Hong

In this paper, we use data of life insurance holdings by age, sex, and marital status to infer how individuals value consumption in different demographic stages. Essentially, we use revealed preference to estimate equivalence scales and altruism simultaneously in the

context of a fully specifed model with agents facing U.S. demographic features and with access to savings markets and life insurance markets. Our findings indicate that individuals are very caring for their dependents, that there are large economies of scale in consumption,

that children are costly but wives with children produce a lot of goods in the home and that while females seem to have some form of habits created by marriage, men do not.

These findings contrast sharply with the standard notions of equivalence scales.

For more information, contact Jere Behrman.