The tragedy of annuitization
We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological 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 due to adverse general equilibrium repercussions.
Year of publication: |
2010
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Authors: | Heijdra, Ben J. ; Mierau, Jochen O. ; Reijnders, Laurie S. M. |
Publisher: |
Munich : Center for Economic Studies and ifo Institute (CESifo) |
Subject: | Lebensversicherung | Private Rentenversicherung | Gesetzliche Rentenversicherung | Sterblichkeit | Versicherungstechnisches Risiko | Privater Transfer | Overlapping Generations | Versicherungsökonomik | Allgemeines Gleichgewicht | Soziale Wohlfahrtsfunktion | Wohlfahrtseffekt | Theorie | longevity risk | risk sharing | overlapping generations | intergenerational transfers | annuity markets |
Saved in:
freely available
Series: | CESifo Working Paper ; 3141 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 633159220 [GVK] hdl:10419/39053 [Handle] |
Classification: | D52 - Incomplete Markets ; D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving ; E10 - General Aggregative Models. General ; J20 - Time Allocation; Work Behavior; Employment Determination and Creation. General |
Source: |
Persistent link: https://www.econbiz.de/10010270647