Risk-Sharing Within Families: Evidence From the Health and Retirement Study

We report strong empirical support for the presence of a risk-sharing motive of within-family monetary flows. A standard model of risk-sharing predicts that the share of current family income consumed by a child positively depends on that child's lifetime contribution to the present value of the total family income. Therefore, sensitivity of transfer receipts to fluctuations in recipient's current income is smaller for children who contribute more. We test this distinguishing prediction of the risk-sharing model by exploiting the observed variation of parental transfers to siblings over 17 years in a longitudinal dataset derived from the Health and Retirement Study.