Inequality, Risk Sharing and Marrige

This project is aimed at investigating the determination of individual's economic inequality over the life cycle. In particular, it will focus on the interaction among the individual decisions of household formation (marriage), household dissolution (divo rce), household savings and individual labor supply, which has remarkable consequences of individual risk sharing, consumption inequality and, ultimately, economic welfare. The main research questions of the project are: 1.How do couples share risk (eg. earnings risk and wage risk) within the household? 2. How does the individual?s labor supply and savings interact with the marriage and divorce choice? 3. In economic theory, can we develop a dynamic model with the collective choice and the insurance within the household and use it to explain the life-cycle facts , which are not well explained by the standard unitary models? 4. With the calibrated model matching the data well, what can we learn from the welfare implication of changing risks, such a s the increasing wage dispersion, and the consequences of economic policies, such as the redistribution tax and pension systems? To answer these questions, the project will deliver a dynamic stochastic general equilibrium model with large scale overlapp ing generations, calibrate it to the U.S. or Norwegian data and simulate the model to give predictions. This project is expected to make scientific contribution to the economic theory of heterogenous agents, risk sharing and family. It is to use the pow erful analytical tool of dynamic contract to address the neglegeted black box of familiy decision. It is important to see what the new model can deliver, confront it with data and to evaluate the new model by its degree of improvement of the standard the ory.