Household Risksharing Channels

This paper aims to fill the gap on the analysis of risksharing channels at the micro level, both within and across households. Using data from the Bank of Italy’s Survey on Household Income and Wealth covering the financial crisis, we are able to quantify in a unified and consistent framework several risksharing mechanisms that so far have been documented separately. We find that Italian households were able to smooth almost 86% of shocks to household head’s nonfinancial income (labelled “basic income”) in 2008-2010, a fraction rising to 93% in 2010-2012. The most important smoothing mechanisms turns out to be selfinsurance through saving/dis-saving (46% in 2008-2010), and within-household risksharing (42% in 2010-2012); but an analysis by net wealth discloses striking differences in within-household risksharing between “poor” and “rich” households. Interestingly, risksharing through portfolio diversification and private transfers is rather limited, but the overall degree of shock absorption occurring through private risksharing channels exceeds 73%, as opposed to a meager 13% of a shock cushioned by public transfers and taxes.