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Life Insurance and Household Consumption

http://dx.doi.org/10.1257/aer.102.7.3701

Using life insurance holdings by age, sex, and marital status, we infer how individuals value consumption in different demographic stages. We estimate equivalence scales and bequest motives simultaneously within a fully specified model where agents face U.S. demographics and save and purchase life insurance. Our findings indicate that individuals are very caring for dependents, that economies of scale are large, that children are very costly (or yield very high marginal utility), that wives with children produce lots of home goods, and that females display habits from marriage, while men do not. These findings contrast sharply with standard equivalence scales.

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