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Abstract

It is well known that marriage can function as a form of insurance against labor market shocks. However, most of the literature is focused on the labor supply margin. In the first part of this dissertation, we focus on a less studied margin: how spouses adjust the excludable part of their consumption (i.e. private consumption) to support one another in the face of earnings shocks. We examine household panel data from Japan to observe the composition of total household consumption in terms of the public and private consumption of each spouse. Our main empirical is a disparity by gender in consumption insurance against permanent shocks to household earnings. Consumption of female individuals is more insured than that of male individuals, a finding which is robust to a variety of specifications. We propose two mechanisms and illustrate via a stylized theoretical framework how the proposed mechanisms can generate this empirical finding. The first mechanism is a disparity in the degree of risk aversion across gender, in which a higher level of risk-aversion in females leads to higher levels of insurance. The second mechanism is the threat of divorce by the wife, motivating the husband to provide her with a smoother consumption path. We find empirical evidence in support of the both proposed mechanisms; however, some evidence suggests that the threat of divorce dominates in terms of the magnitude of the effect. Finally, we consider the labor supply margin. We find that there is substitutability between labor supply and private consumption: higher hours of work are compensated with more private consumption. ,Underscoring the importance of the threat of divorce on risk-sharing within the household, in the second part we focus on the interaction of divorce and risk sharing in the household. We examine how allowing for endogenous marriage dissolution weakens the function of marriage in the provision of insurance against labor market shocks. We present a model of marriage dissolution and risk sharing in the face of wage shocks. We provide an algorithm to solve the model and obtain the reduced form policy functions of the structural model. Next, using the nonlinear measurement error literature, we show the identification of the reduced form policy functions and specify the required assumption to obtain the identification. We illustrate how our Japanese panel data provide us with the necessary observable variables for the identification.

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