The Family as an Incomplete Annuities Market

Families can self-insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers. Interfamily transfers need have nothing to do with altruistic feelings; they may simply reflect risk-sharing behavior of completely selfish family members. Although family annuity markets are incomplete, even small families can substitute by more than 70 percent for perfect market annuities. Given adverse selection and transaction costs, family risk pooling may be preferred to public market annuities. In the absence of public annuities, these risk-sharing arrangements provide powerful incentives for marriage and family formation.