Imperfect commitment, altruism, and the family: Evidence from transfer behavior in low-income rural areas

In this paper, we examine empirically whether risk pooling is more advantag eous among altruistic compared to selfish agents in a framework where indiv iduals cannot make binding commitments. In particular, we incorporate altui sm into a model of risk sharing under imperfect commitment and use simulati on methods to establish tests of the roles of both altruism and commitment problems in determining the extent of insurance and the intertemporal movem ents in interhousehold transfers. The tests are carried out using three pan el data sets from two countries of rural South Asia that provide detailed i nformation on transfers and enable the measurement of income shocks. The es timates provide strong support for the notion that imperfect commitment sub stantially constrains informal transfer arrangements, whether kin-based or not, but also provide evidence that altruism plays an important role in ame liorating commitment constraints and thus in increasing the gains from inco me pooling.