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Annuity Markets, Savings, and the Capital Stock

In: Issues in Pension Economics

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Author Info

  • Laurence J. Kotlikoff
  • John B. Shoven
  • Avia Spivak

Abstract

This article examines how the availability of annuities affects savings and inequality in economies in which neither private nor public pensions initially exist. The absence of widespread market or government annuity insurance is clearly descriptive of many less developed countries in the world today; it was also a characteristic of virtually all countries prior to World War II. The paper compares economies with perfect insurance with economies in which completely selfish parents and children pool longevity risk to their mutual advantage. The analysis of the latter economies takes into account the infinite sequence of risk sharing bargains of successive parents with their children. Such bargains affect current risk sharing between parents and child because they determine the welfare of current children when they become parents. Calculations based on the CBS utility function indicate that perfecting annuity insurance can significantly reduce national savings. Indeed, the insurance aspects of government pensions are potentially as important as underfunding government pensions in reducing national savings.

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This chapter was published in:

  • Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6860.

    Handle: RePEc:nbr:nberch:6860

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    2. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," NBER Working Papers 0362, National Bureau of Economic Research, Inc.
    3. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
    4. Sheshinski, Eytan & Weiss, Yoram, 1981. "Uncertainty and Optimal Social Security Systems," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 189-206, May.
    5. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
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    Cited by:
    1. Laurence J. Kotlikoff & John B. Shoven & Avia Spivak, 1984. "The Impact of Annuity Insurance on Savings and Inequality," NBER Working Papers 1403, National Bureau of Economic Research, Inc.
    2. R. Glenn Hubbard, 1984. "'Precautionary' Saving Revisited: Social Security, Individual Welfare, and the Capital Stock," NBER Working Papers 1430, National Bureau of Economic Research, Inc.
    3. Jonathan Gruber & Aaron Yelowitz, 1997. "Public Health Insurance and Private Savings," NBER Working Papers 6041, National Bureau of Economic Research, Inc.
    4. Laurence J. Kotlikoff & Lawrence H. Summers, 1986. "The Contribution of Intergenerational Transfers to Total Wealth: A Reply," NBER Working Papers 1827, National Bureau of Economic Research, Inc.
    5. Sven H. Sinclair & Kent A. Smetters, 2004. "Health Shocks and the Demand for Annuities: Technical Paper 2004-09," Working Papers 15868, Congressional Budget Office.
    6. Kotlikoff, Laurence J, 1988. "Intergenerational Transfers and Savings," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 41-58, Spring.
    7. Michael D. Hurd, 1987. "The Poverty of Widows: Future Prospects," NBER Working Papers 2326, National Bureau of Economic Research, Inc.
    8. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
    9. Hugo Benitez-Silva, 2000. "A Dynamic Model of Labor Supply, Consumption/Saving, and Annuity Decisions under Uncertainty," Department of Economics Working Papers 00-06, Stony Brook University, Department of Economics.
    10. Engen, Eric M. & Gruber, Jonathan, 2001. "Unemployment insurance and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 545-579, June.
    11. Hugo Benítez-Silva, 2003. "The Annuity Puzzle Revisited," Working Papers wp055, University of Michigan, Michigan Retirement Research Center.

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