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On Uncertain Lifetimes

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  • Barro, Robert J
  • Friedman, James W

Abstract

This paper contrasts consumer choice under uncertain lifetimes with the behavior that would arise if each individual's lifetime were announced at birth. In a model that includes life insurance and excludes investments in human capital, the expected utility under uncertain lifetimes exceeds that under known lifetimes when the latter expectation is based on preannouncement survival probabilities. This conclusion emerges, first, because the model without human capital contains no planning benefits from knowledge of the horizon and, second, because the prior announcement of lifetimes forces risk-averse consumers to undertake an extra gamble that they could otherwise avoid by using life insurance.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 85 (1977)
Issue (Month): 4 (August)
Pages: 843-49

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Handle: RePEc:ucp:jpolec:v:85:y:1977:i:4:p:843-49

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References

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  1. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
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Citations

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Cited by:
  1. Joel Slemrod, 1982. "Post-War Capital Accumulation and the Threat of Nuclear War," NBER Working Papers 0887, National Bureau of Economic Research, Inc.
  2. R. Glenn Hubbard & Kenneth L. Judd, 1985. "Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax," NBER Working Papers 1736, National Bureau of Economic Research, Inc.
  3. Abel, Andrew B, 1986. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," Econometrica, Econometric Society, vol. 54(5), pages 1079-97, September.
  4. Tobias Vogt & Fanny A. Kluge, 2013. "Care for money? Mortality improvements, increasing intergenerational transfers, and time devoted to the elderly," MPIDR Working Papers WP-2013-014, Max Planck Institute for Demographic Research, Rostock, Germany.
  5. Bommier, Antoine & Leroux, Marie-Louise & Lozachmeur, Jean-Marie, 2011. "On the public economics of annuities with differential mortality," Journal of Public Economics, Elsevier, vol. 95(7), pages 612-623.
  6. R. Glenn Hubbard, 1988. "Uncertain Lifetimes, Pensions, and Individual Saving," NBER Working Papers 1363, National Bureau of Economic Research, Inc.
  7. Butler, Monika, 2000. "The political feasibility of pension reform options: the case of Switzerland," Journal of Public Economics, Elsevier, vol. 75(3), pages 389-416, March.
  8. Lee, Robert H., 2008. "Future costs in cost effectiveness analysis," Journal of Health Economics, Elsevier, vol. 27(4), pages 809-818, July.
  9. Eichenbaum, Martin S & Peled, Dan, 1987. "Capital Accumulation and Annuities in an Adverse Selection Economy," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 334-54, April.
  10. Antoine Bommier, 2006. "Mortality, Time Preference and Life-Cycle Models," Working Papers hal-00441888, HAL.
  11. Gary D. Hansen, . "Consumption over the Life Cycle: The Role of Annuities (with Selo Imrohoroglu)," UCLA Economics Online Papers 417, UCLA Department of Economics.
  12. Siu Fai Leung, 1995. "A distinction between continuous-time and discrete-time models of uncertain lifetime," Economics Letters, Elsevier, vol. 47(3-4), pages 291-296, March.
  13. Moresi, Serge, 1999. "Uncertain lifetime, risk aversion and intertemporal substitution," Economics Letters, Elsevier, vol. 62(2), pages 207-212, February.

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