Family networks and household outcomes in an economic crisis
Karner, Paul Edward
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This thesis theoretically and empirically analyzes the nature and consequences of interactions between family members. The first chapter tests whether children's human capital accumulation was significantly affected by earnings shocks to their nonresident kin in the context of the 1997-8 financial crisis in Indonesia. The crisis produced sudden, heterogeneous shocks that facilitate the construction of an exogenous measure of earnings changes. Results indicate that earnings shocks to nonresident kin - including extended family and relatives living in other districts- significantly affected children's human capital accumulation between 1997 and 2000, and ultimate educational attainment measured nearly a decade after the crisis hit. Supplementary results point to intra-family transfers, underpinned by ex post altruism, as an important channel of causation. The second chapter develops a theoretical model of private transfers underpinned by ex post altruism among members of a network. I use this model to analyze equilibrium transfer patterns and inequality under alternative income distributions and network structures. I demonstrate the general intuition that transfers obtain in equilibrium when the amount of altruism is sufficiently strong relative to income inequality. Within the networks that I analyze, every equilibrium involving transfers takes the same form: unique income thresholds separate senders from receivers. Effective risk sharing takes place among senders and receivers, while those at intermediate incomes remain in autarky. Every equilibrium gives rise to the same set of allocations. I contrast these predictions with insurance-based theories of transfers in which risk sharing is operative for small in come differences and may fall apart at large income differences. The third chapter uses longitudinal data spanning nearly fifteen years to test whether transfers among family members within Indonesia are consistent with ex post altruism, against the alternative of insurance. I use the predicted effects of permanent versus transitory income on transfers, as well as theoretical predictions from the second chapter regarding the shape of transfer functions , to carry out this test. The results provide some evidence that transfer motives are inconsistent with insurance but consistent with ex post altruism.
Thesis (Ph.D.)--Boston University
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