Hostname: page-component-7b7567c8c-2n9c9 Total loading time: 0 Render date: 2026-11-15T00:34:36.937Z Has data issue: false hasContentIssue false
  • English
  • Français

A TRAGEDY OF ANNUITIZATION? LONGEVITY INSURANCE IN GENERAL EQUILIBRIUM

Published online by Cambridge University Press:  13 June 2013

Ben J. Heijdra,
Jochen O. Mierau and
S. M. Reijnders
Ben J. Heijdra*
Affiliation:
University of Groningen IHS (Vienna) CESifo and Netspar
Jochen O. Mierau
Affiliation:
University of Groningen and Netspar
S. M. Reijnders
Affiliation:
University of Groningen and Netspar
*
Address correspondence to: Ben J. Heijdra, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV Groningen, The Netherlands; e-mail: b.j.heijdra@rug.nl.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

We study the microeconomic and macroeconomic effects of longevity insurance. Using a tractable discrete-time overlapping-generations model of a closed economy we first study different types of government redistribution of accidental bequests in general equilibrium. Individuals face longevity risk, as there is a positive probability of passing away before the retirement period. We find nonpathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal, it is not socially beneficial, because of adverse general equilibrium repercussions.

Keywords

Longevity RiskRisk SharingOverlapping GenerationsIntergenerational TransfersAnnuity Markets

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 7 , October 2014, pp. 1607 - 1634
Copyright
Copyright © Cambridge University Press 2013 

References

REFERENCES

Abel, A.B. (1985) Precautionary saving and accidental bequests. American Economic Review 75, 777–791.Google Scholar
Abel, A.B., Mankiw, N.G., Summers, L.H., and Zeckhauser, R. (1989) Assessing dynamic efficiency: Theory and evidence. Review of Economic Studies 56, 1–19.Google Scholar
Andersen, T. and Bhattacharya, J. (in press) Unfunded pensions and endogenous labour supply. Macroeconomic Dynamics.Google Scholar
Attanasio, O.P. and Weber, G. (1995) Is consumption growth consistent with intertemporal optimization? Evidence from the consumer expenditure survey. Journal of Political Economy 103, 1121–1157.Google Scholar
Bruce, N. and Turnovsky, S.J. (in press) Demography and growth: A unified treatment of overlapping generations. Macroeconomic Dynamics.Google Scholar
Davidoff, T., Brown, J.R., and Diamond, P.A. (2005) Annuities and individual welfare. American Economic Review 95, 1573–1590.Google Scholar
Diamond, P.A. (1965) National debt in a neoclassical growth model. American Economic Review 55, 1126–1150.Google Scholar
Fehr, H. and Habermann, C. (2008) Welfare effects of life annuities: Some clarifications. Economics Letters 99, 177–180.CrossRefGoogle Scholar
Heijdra, B.J. and Mierau, J.O. (2010) Growth effects of consumption and labour-income taxation in an overlapping-generations life-cycle model. Macroeconomic Dynamics 14 (Suppl. 2), 151–175.Google Scholar
Heijdra, B.J., Mierau, J.O., and Reijnders, L.S.M. (2012) A Tragedy of Annuitization? Mathematical Appendix. Faculty of Economics and Business, University of Groningen, September. Available at http://www.heijdra.org/Joclau01MA.pdf.Google Scholar
Hubbard, R.G. (1984) “Precautionary” Saving Revisited: Social Security, Individual Welfare, and the Capital Stock. Working paper 1430, NBER, Cambridge, MA.Google Scholar
Kotlikoff, L.J., Shoven, J., and Spivak, A. (1986) The effect of annuity insurance on savings and inequality. Journal of Labor Economics 4, S183–207.Google Scholar
Li, J. and Lin, S. (2012) Existence and uniqueness of steady-state equilibrium in a generalized overlapping-generations model. Macroeconomic Dynamics 16 (Suppl. 3), 299–311.Google Scholar
Pecchenino, R.A. and Pollard, P.S. (1997) The effects of annuities, bequests, and aging in an overlapping generations model with endogenous growth. Economic Journal 107, 26–46.CrossRefGoogle Scholar
Romer, P.M. (1989) Capital accumulation in the theory of long-run growth. In Barro, R.J. (ed.), Modern Business Cycle Theory, pp. 51–127. Oxford, UK: Basil Blackwell.Google Scholar
Samuelson, P.A. (1968) The two-part golden rule deduced as the asymptotic turnpike of catenary motions. Western Economic Journal 6, 85–89.Google Scholar
Sheshinski, E. and Weiss, Y. (1981) Uncertainty and optimal social security systems. Quarterly Journal of Economics 96, 189–206.Google Scholar
Skinner, J. (1985) Variable lifespan and the intertemporal elasticity of consumption. Review of Economics and Statistics 67, 616–623.Google Scholar
Yaari, M.E. (1965) Uncertain lifetime, life insurance, and the theory of the consumer. Review of Economic Studies 32, 137–150.Google Scholar