On the existence of informal insurance mechanism within French couples

Abstract

Public insurance providers generally ignore that they play in parallel with informal insurance mechanisms that operate within households through consumption sharing and smoothing, and joint labor supply decisions among others. Understanding how our institutions shape the society, especially family ties, is an important stake. This paper contributes to this analysis by estimating the extent of informal intra-household risk-sharing within French couples. Our methodology allows disentangling the correlation of earnings risk due to circumstances and assortative matching from the behavioral informal insurance mechanism. We find no evidence of intra-household risk-sharing behavior within French couples. Our estimated results which show large and positive behavior correlation of earnings risk even bring evident to cast doubt on the crowding effect of the public provision insurance.