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The Tragedy of Annuitization

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Author Info

  • Heijdra, Ben J.

    (Faculty of Economics and Business, University of Groningen, The Netherlands, and Institute for Advanced Studies, CESifo, Netspar)

  • Mierau, Jochen O.

    (Faculty of Economics and Business, University of Groningen, The Netherlands)

  • Reijnders, Laurie S.M.

    (Faculty of Economics and Business, University of Groningen, The Netherlands)

Abstract

We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for longrun welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.

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File URL: http://www.ihs.ac.at/publications/eco/es-268.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 268.

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Length: 45 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:ihs:ihsesp:268

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Related research

Keywords: Longevity risk; Risk sharing; Overlapping generations; Intergenerational transfers; Annuity markets;

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References

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  1. Heijdra, Ben J. & Mierau, Jochen O. & Reijnders, Laurie S.M., 2011. "The Tragedy of Annuitization," Economics Series 268, Institute for Advanced Studies.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Tragedy of Annuitization
    by Christian Zimmermann in NEP-DGE blog on 2011-06-13 01:46:27
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Cited by:
  1. Ben Heijdra & Jochen Mierau, 2011. "The Individual Life Cycle and Economic Growth: An Essay on Demographic Macroeconomics," De Economist, Springer, vol. 159(1), pages 63-87, March.
  2. 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.
  3. Ben Heijdra & Laurie Reijnders, 2012. "Adverse Selection in Private Annuity Markets and the Role of Mandatory Social Annuitization," De Economist, Springer, vol. 160(3), pages 311-337, September.
  4. Ben J. Heijdra & Jochen O. Mierau & Laurie S. M. Reijnders, 2010. "The Tragedy of Annuitization," CESifo Working Paper Series 3141, CESifo Group Munich.

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