Search

We analyze the role of risk-sharing institutions in transitions to modern economies. Transitions requires individual-level risk-taking in pursuing productivity-enhancing activities including using and developing new knowledge. Individual-level, idiosyncratic risk implies that distinct risk-sharing institutions – even those providing the same level of insurance – can lead to different growth trajectories if they differently motivate risk-taking. Historically, risk sharing institutions were selected based on their cultural and institutional compatibility and not their unforeseen growth implications. We simulate our growth model incorporating England’s and China’s distinct pre-modern risk-sharing institutions. The model predicts a transition in England and not China even with equal levels of risk sharing. Under the clan-based Chinese institution, the relatively risk-averse elders had more control over technological choices implying lower risk-taking. Focusing on non-market institutions expands on previous growth-theoretic models to highlight that transitions can transpire even in the absence of exogenous productivity shocks or time-dependent state variables. Recognizing the role of non-market institutions in the growth process bridges the view that transitions are due to luck and the view that transitions are inevitable. Transitions transpire when ‘luck’ creates the conditions under which economic agents find it beneficial to make the choices leading to positive rates of technological change. Luck came in the form of historical processes leading to risk-sharing institutions whose unintended consequences encouraged productivity-enhancing risk-taking.

We develop a collective household model with spousal matching in which there exists marital gains to assortative matching and marriage quality for each couple is revealed ex post. Changes in alimony laws are shown to affect existing couples and couples-to-be differently. For existing couples, legislative changes that favor (wo)men benefit them especially if the marriage match quality is low, while, for couples not yet formed, they generate offsetting intra-household transfers and lower intra-marital allocations for the spouses who are the intended beneficiary. We then estimate the effect of granting alimony rights to cohabiting couples in Canada using a triple-difference framework since each province extended these rights in different years and requiring different cohabitation length. We find that obtaining the right to petition for alimony led women to lower their labor force participation. These results, however, do not hold – and, in some cases, are reversed – for newly formed cohabiting couples.