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Rational Impatience ?

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Author Info

  • Antoine Bommier

    ()
    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - INRA : UMR)

Abstract

This paper introduces a life-cycle model where impatience, instead of being driven by an exogenous discount function, results from the combination of risk aversion and mortality risks. Opting for such a formulation provides novel views on the impact of longevity extension on welfare, saving behavior and capital accumulation. In particular, we show that longevity extension may have much larger impacts on capital accumulation and equilibrium rate of interest than is usually thought. Moreover, we show that the adherence to the additive life cycle model introduced by Yaari (1965) may lead to significantly overstimating the welfare gains due to mortality risk reduction.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00441880.

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Date of creation: 11 Apr 2008
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Handle: RePEc:hal:wpaper:hal-00441880

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00441880/en/
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References

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  1. Eytan Sheshinski, 2005. "Longevity and Aggregate Savings," Discussion Paper Series dp403, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  2. Antoine Bommier & Jean-Charles Rochet, 2006. "Risk Aversion and Planning Horizons," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 708-734, 06.
  3. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  4. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2000. "Vintage Human Capital, Demographic Trends and Endogenous Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Antoine Bommier, 2006. "Uncertain Lifetime And Intertemporal Choice: Risk Aversion As A Rationale For Time Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1223-1246, November.
  6. Robert E. Hall & Charles I. Jones, 2005. "The value of life and the rise in health spending," Proceedings, Federal Reserve Bank of San Francisco.
  7. Valery Polkovnichenko, 2007. "Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk," Review of Financial Studies, Society for Financial Studies, vol. 20(1), pages 83-124, January.
  8. Bommier, Antoine & Villeneuve, Bertrand, 2008. "Risk Aversion and the Value of Risk to Life," MPRA Paper 11943, University Library of Munich, Germany.
  9. Rajnish Mehra & Edward C. Prescott, 2003. "The Equity Premium in Retrospect," NBER Working Papers 9525, National Bureau of Economic Research, Inc.
  10. Arthur Robson & Larry Samuelson, 2008. "The Evolution of Decision and Experienced Utilities," Cowles Foundation Discussion Papers 1678, Cowles Foundation for Research in Economics, Yale University, revised Feb 2010.
  11. Gomes, Francisco J & Michaelides, Alexander, 2003. "Portfolio Choice with Internal Habit Formation: A Life-Cycle Model with Uninsurable Labour Income Risk," CEPR Discussion Papers 3868, C.E.P.R. Discussion Papers.
  12. Antoine Bommier & Ronald D. Lee, 2003. "Overlapping generations models with realistic demography," Journal of Population Economics, Springer, vol. 16(1), pages 135-160, 02.
  13. Jeffrey Brown & Jeffrey B. Liebman & Joshua Pollet, 2002. "Appendix. Estimating Life Tables That Reflect Socioeconomic Differences In Mortality," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 447-458 National Bureau of Economic Research, Inc.
  14. van der Ploeg, Frederick, 1993. "A Closed-Form Solution for a Model of Precautionary Saving," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 385-95, April.
  15. Siegel, Jeremy J., 1992. "The real rate of interest from 1800-1990 : A study of the U.S. and the U.K," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 227-252, April.
  16. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  17. Kevin M. Murphy & Robert H. Topel, 2005. "The Value of Health and Longevity," NBER Working Papers 11405, National Bureau of Economic Research, Inc.
  18. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  19. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
  20. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  21. Scott F. Richard, 1975. "Multivariate Risk Aversion, Utility Independence and Separable Utility Functions," Management Science, INFORMS, vol. 22(1), pages 12-21, September.
  22. Sandra J. Peart, 2000. "Irrationality and intertemporal choice in early neoclassical thought," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 175-189, February.
  23. George J. Stigler, 1950. "The Development of Utility Theory. I," Journal of Political Economy, University of Chicago Press, vol. 58, pages 307.
  24. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2005. "The Quantity and Quality of Life and the Evolution of World Inequality," American Economic Review, American Economic Association, vol. 95(1), pages 277-291, March.
  25. Ahn, Chang Mo, 1989. " The Effect of Temporal Risk Aversion on Optimal Consumption, the Equity Premium, and the Equilibrium Interest Rate," Journal of Finance, American Finance Association, vol. 44(5), pages 1411-20, December.
  26. Kihlstrom, Richard E. & Mirman, Leonard J., 1974. "Risk aversion with many commodities," Journal of Economic Theory, Elsevier, vol. 8(3), pages 361-388, July.
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Citations

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Cited by:
  1. BOMMIER, Antoine & LEROUX, Marie- Louise & LOZACHMEUR, Jean- Marie, 2009. "On the public economics of annuities with differential mortality," CORE Discussion Papers 2009030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. D'Albis, Hippolyte & Lau, Paul S. & Sanchez-Romero, Miguel, 2012. "Mortality transition and differential incentives for early retirement," Economics Papers from University Paris Dauphine 123456789/6825, Paris Dauphine University.
  3. Antoine Bommier, 2013. "Life-Cycle Preferences Revisited," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1290-1319, December.

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