This paper investigates the possibility that transfers of money between household members arise because a family member wishes to pay another an insurance premium in exchange for the right to collect an insurance coverage if a loss is suffered. The motive for the transfers is known as non-market insurance, and it is compared with altruism, bequests, and child-services-for-money (ABC). Some empirical evidence for non-market insurance is found based upon the panel study of income dynamics.
The Coase theorem and the Rotten-Kid theorem are compared against each other in a simplified model of altruism and externalities. The efficiency predictions of the Coase theorem are found to be unaltered by the altruism, whereas those of the Rotten-Kid theorem are found to be applicable only to a more specialized type of social-welfare function.
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