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American Economic Review: Vol. 102 No. 7 (December 2012)

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Life Insurance and Household Consumption

Article Citation

Hong, Jay H., and José-Víctor Ríos-Rull. 2012. "Life Insurance and Household Consumption." American Economic Review, 102(7): 3701-30.

DOI: 10.1257/aer.102.7.3701

Abstract

Using life insurance holdings by age, sex, and marital status, we infer how individuals value consumption in different demographic stages. We estimate equivalence scales and bequest motives simultaneously within a fully specified model where agents face US demographics and save and purchase life insurance. Our findings indicate that individuals are very caring for dependents, that economies of scale are large, that children are very costly (or yield very high marginal utility), that wives with children produce lots of home goods, and that females display habits from marriage, while men do not. These findings contrast sharply with standard equivalence scales.

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Authors

Hong, Jay H. (U Rochester)
Ríos-Rull, José-Víctor (U MN and Federal Reserve Bank of Minneapolis)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D14: Personal Finance
D64: Altruism; Philanthropy
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
E21: Macroeconomics: Consumption; Saving; Wealth
G22: Insurance; Insurance Companies


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