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Retirement with Perfect Insurance

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  • Grzegorz Kula

    ()
    (Faculty of Economics, Erasmus University Rotterdam)

Abstract

This paper focuses on the relation between worker's productivity and retirement decision. Assuming that productivity follows geometric Brownian motion with drift, there exists such a level of productivity for which it is optimal to retire. The worker buys an insurance, which gives a constant income and retirement benefits in exchange for the total output. The level of income and benefits is set to maximize lifetime utility. In such framework we find the retirement threshold of productivity and the probability of retirement.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-097/3.

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Date of creation: 08 Dec 2003
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Handle: RePEc:dgr:uvatin:20030097

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Related research

Keywords: retirement; insurance; productivity;

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  13. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  14. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  15. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
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