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Family Transfers in Rural Mexico: An Application to Risk Sharing and Labor Supply Elasticity

By Rachel Soloveichik


This paper develops a new model of risk sharing that allows for permanent wage shocks and nonseparable consumption. My model predicts that high wage men work more and give more money to their parents than their low wage brothers. Because high wage men work more, they consume fewer complements and more substitutes for leisure. I test this model with two new instruments for wages in rural Mexico. I find that high wage men do indeed work more, own fewer televisions, eat the same food and own more cars. These results cannot be explained by a model of risk sharing with separable consumption. Because my wage instruments use education shocks, this paper may also be useful to economists studying education in the developing world

Topics: Heckman and Robert Topel for their help. I would also like to thank the University of
Year: 2011
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