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Annuity Market Imperfection, Retirement and Economic Growth

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  • Ben J. Heijdra
  • Jochen O. Mierau

Abstract

We study the effects of an annuity market imperfection on individual agents’ labour supply and retirement decisions and on the macroeconomic growth rate in an overlapping generations model with endogenous growth. We model imperfect annuities by introducing a load factor on the interest rate faced by finitely-lived agents. Our core model features age-independent wages and a constant mortality rate. In the first extension we study the implications for microeconomic decisions and macroeconomic outcomes of a hump-shaped life-cycle profile in labour productivity, whilst in the second extension we postulate a realistic mortality process. Our main findings are that the limited availability of annuities induces agents to retire early in the first two models, but later in the model with age-dependent mortality. In all cases, the general equilibrium repercussion is that economic growth is lower under imperfect annuities than with perfect annuities.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2717.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2717

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Keywords: annuity markets; retirement; endogenous growth; overlapping generations; demography;

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References

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Citations

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Cited by:
  1. Michael Funke & Yu-Fu Chen, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20908, Hamburg University, Department of Economics.
  2. Ben Heijdra & Jochen Mierau, 2011. "The Individual Life Cycle and Economic Growth: An Essay on Demographic Macroeconomics," De Economist, Springer, Springer, vol. 159(1), pages 63-87, March.
  3. d'Albis, Hippolyte & Lau, Paul & Sanchez-Romero, Miguel, 2010. "Mortality transition and differential incentives for early retirement," LERNA Working Papers, LERNA, University of Toulouse 10.21.327, LERNA, University of Toulouse.
  4. Ben Heijdra & Laurie Reijnders, 2013. "Economic Growth and Longevity Risk with Adverse Selection," De Economist, Springer, Springer, vol. 161(1), pages 69-97, March.
  5. Klaus Prettner & David Canning, 2014. "Increasing life expectancy and optimal retirement in general equilibrium," Economic Theory, Springer, Springer, vol. 56(1), pages 191-217, May.
  6. Heijdra, Ben J. & Mierau, Jochen O., 2012. "The individual life-cycle, annuity market imperfections and economic growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(6), pages 876-890.
  7. Jochen Mierau & Stephen Turnovsky, 2014. "Demography, growth, and inequality," Economic Theory, Springer, Springer, vol. 55(1), pages 29-68, January.
  8. Ben Heijdra & Laurie Reijnders, 2012. "Adverse Selection in Private Annuity Markets and the Role of Mandatory Social Annuitization," De Economist, Springer, Springer, vol. 160(3), pages 311-337, September.
  9. 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.
  10. repec:hal:cesptp:hal-00659868 is not listed on IDEAS
  11. 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).
  12. Chen, Yu-Fu & Funke, Michael, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2009-31, Scottish Institute for Research in Economics (SIRE).
  13. Jochen Mierau & Stephen Turnovsky, 2014. "Capital accumulation and the sources of demographic change," Journal of Population Economics, Springer, Springer, vol. 27(3), pages 857-894, July.

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