Download or read book Market Inefficiency and Household Labor Supply written by Itzik Fadlon and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of the Social Security survivors benefits program on household labor supply and the efficiency implications for insurance and credit markets. We use U.S. population tax records and exploit a sharp age discontinuity in benefit eligibility for identification. We find that eligibility induces considerable reductions in labor supply both among newly-widowed households in the immediate post-shock periods and among already-widowed households whose benefit receipt is entirely predictable. The evidence points to liquidity constraints, rather than myopia, as a leading operative mechanism underlying household responses to anticipated benefits. Our findings identify important inefficiencies in the life insurance market and in the allocation of credit. Our results further highlight the protective insurance role of the social program and the importance of liquidity provided by the government, and they suggest potential gains from expanding and smoothing the program's benefit schedule.