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Uncertain Longevity and Investment in Education

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  • Eytan Sheshinski

Abstract

It has been argued that increased life expectancy raises the rate of return on education, causing a rise in the investment in education followed by an increase in lifetime labor supply. Empirical evidence of these relations is rather weak. Building on a lifecycle model with uncertain longevity, this paper shows that increased life expectancy does not suffice to warrant the above hypotheses. We provide assumptions about the change in survival probabilities, specifically about the age dependence of hazard rates, which determine individuals’ behavioral response w.r.t. education, work and age of retirement. Comparison is made between the case when individuals have access to a competitive annuity market and the case of no insurance.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2784.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2784

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Keywords: longevity; survival functions; education; work; age of retirement; annuities;

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References

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  1. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  2. Peter Lorentzen & John McMillan & Romain Wacziarg, 2005. "Death and Development," NBER Working Papers 11620, National Bureau of Economic Research, Inc.
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  4. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, vol. 89(2), pages 150-154, May.
  5. Eytan Sheshinski, 2007. "The Economic Theory of Annuities," Economics Books, Princeton University Press, edition 1, volume 1, number 8536.
  6. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
  7. Cervellati, Matteo & Sunde, Uwe, 2002. "Human Capital Formation, Life Expectancy and the Process of Economic Development," IZA Discussion Papers 585, Institute for the Study of Labor (IZA).
  8. Moshe Hazan, 2009. "Longevity and Lifetime Labor Supply: Evidence and Implications," Econometrica, Econometric Society, vol. 77(6), pages 1829-1863, November.
  9. Ananth Seshadri & Rodolfo Manuelli, 2005. "Human Capital and the Wealth of Nations," 2005 Meeting Papers 56, Society for Economic Dynamics.
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Cited by:
  1. Oded Galor, 2010. "The Demographic Transition: Causes and Consequences," Working Papers 2010-12, Brown University, Department of Economics.
  2. Daishin Yasui, 2012. "Adult Longevity and Growth Takeoff," Discussion Papers 1218, Graduate School of Economics, Kobe University.
  3. Hansen, Casper Worm & Lønstrup, Lars, 2011. "Life expectancy and income: The Ben-Porath mechanism revisited," Discussion Papers of Business and Economics 3/2011, Department of Business and Economics, University of Southern Denmark.
  4. Strulik, Holger & Werner, Katharina, 2012. "Life expectancy, labor supply, and long-run growth: Reconciling theory and evidence," Center for European, Governance and Economic Development Research Discussion Papers 141, University of Goettingen, Department of Economics.

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