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The individual life-cycle, annuity market imperfections and economic growth

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  • Heijdra, Ben J.
  • Mierau, Jochen O.

Abstract

We study the effects of an annuity market imperfection on individual agents' life-cycle decisions and on the macroeconomic growth rate in an overlapping generations model with single-sector endogenous growth. Our model features both age-dependent mortality and labour productivity. We model imperfect annuities by introducing a load factor on the annuity rate faced by finitely lived agents. Our main finding is that annuity market imperfections decrease economic growth because less assets are necessary for consumption late in life. In addition we find that both the quantitative and qualitative effects of annuity market imperfections are grossly overestimated in a partial equilibrium analysis because it disregards general equilibrium repercussions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 6 ()
Pages: 876-890

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:6:p:876-890

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Annuity markets; Retirement; Endogenous growth; Overlapping generations; Demography;

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Citations

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Cited by:
  1. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, 07.
  2. Ben Heijdra & Laurie Reijnders, 2012. "Adverse Selection in Private Annuity Markets and the Role of Mandatory Social Annuitization," De Economist, Springer, vol. 160(3), pages 311-337, September.
  3. D'Albis, Hippolyte & Lau, Paul S. & Sanchez-Romero, Miguel, 2012. "Mortality transition and differential incentives for early retirement," Economics Papers from University Paris Dauphine 123456789/6825, Paris Dauphine University.
  4. Mierau, Jochen O. & Heijdra, Ben J. & Trimborn, Timo, 2014. "Stimulating Annuity Markets," Research Report 14015-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  5. Ben Heijdra & Jochen Mierau, 2011. "The Individual Life Cycle and Economic Growth: An Essay on Demographic Macroeconomics," De Economist, Springer, vol. 159(1), pages 63-87, March.
  6. Ben Heijdra & Laurie Reijnders, 2013. "Economic Growth and Longevity Risk with Adverse Selection," De Economist, Springer, vol. 161(1), pages 69-97, March.
  7. Jochen Mierau & Stephen Turnovsky, 2014. "Capital accumulation and the sources of demographic change," Journal of Population Economics, Springer, vol. 27(3), pages 857-894, July.
  8. Jochen Mierau & Stephen Turnovsky, 2014. "Demography, growth, and inequality," Economic Theory, Springer, vol. 55(1), pages 29-68, January.
  9. Heijdra, Ben J. & Mierau, Jochen O., 2012. "The individual life-cycle, annuity market imperfections and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 876-890.
  10. repec:hal:cesptp:hal-00659868 is not listed on IDEAS
  11. Klaus Prettner & David Canning, 2014. "Increasing life expectancy and optimal retirement in general equilibrium," Economic Theory, Springer, vol. 56(1), pages 191-217, May.
  12. Ben J. Heijdra & Laurie S. M. Reijnders, 2012. "Human Capital Accumulation and the Macroeconomy in an Ageing Society," CESifo Working Paper Series 4046, CESifo Group Munich.

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