We provide the first analysis of the risk-sharing implications of altruism networks. Agents are embedded in a fixed network and care about each other. We explore whether altruistic transfers help smooth consumption and how this depends on the shape of the network. We find that altruism networks have a first-order impact on risk. Altruistic transfers generate efficient insurance when the network of perfect altruistic ties is strongly connected. We uncover two specific empirical implications of altruism networks. First, bridges can generate good overall risk sharing, and, more generally, the quality of informal insurance depends on the average path length of the network. Second, large shocks are well-insured by connected altruism networks. By contrast, large shocks tend to be badly insured in models of informal insurance with frictions. We characterize what happens for shocks that leave the structure of giving relationships unchanged. We further explore the relationship between consumption variance and centrality, correlation in consumption streams across agents, and the impact of adding links.

After‐tax income inequality has risen since the mid‐1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro‐political foundations and the implied relation between goods diversity and fiscal policy outcomes.

This paper analyses the relationships between HIV/AIDS and education taking into account the appropriative nature of child income. Using a theoretical model, we show that considering remittances from one’s child as an insurance asset can reverse the usual negative relationship between disease prevalence and educational investment. This prediction confirms the results of an empirical study conducted on data compiled from the Demographic and Health Survey (DHS) database for 12 sub-Sahara African countries for children aged between 7 and 22-years-old. Using regional HIV prevalence as a measure of health risk, we find that the ‘sign of the slope’ between health risk and the enrolment of children is not constant. Splitting the data based on expected remittance patterns (for example rural versus urban), we obtain that the effect is most likely driven by household characteristics related to child income appropriation.

We provide the first analysis of altruism in networks. Agents are embedded in a fixed network and care about the well‐being of their network neighbors. Depending on incomes, they may provide financial support to their poorer friends. We study the Nash equilibria of the resulting game of transfers. We show that equilibria maximize a concave potential function. We establish existence, uniqueness of equilibrium consumption, and generic uniqueness of equilibrium transfers. We characterize the geometry of the network of transfers and highlight the key role played by transfer intermediaries. We then study comparative statics. A positive income shock to an individual benefits all. For small changes in incomes, agents in a component of the network of transfers act as if they were organized in an income‐pooling community. A decrease in income inequality or expansion of the altruism network may increase consumption inequality.