The Tragedy of Annuitization
AbstractWe 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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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 268.
Length: 45 pages
Date of creation: May 2011
Date of revision:
Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria
Other versions of this item:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-06-11 (Economics of Ageing)
- NEP-ALL-2011-06-11 (All new papers)
- NEP-DGE-2011-06-11 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben J. Heijdra & Jochen O. Mierau & Laurie S. M. Reijnders, 2010.
"The Tragedy of Annuitization,"
CESifo Working Paper Series
3141, CESifo Group Munich.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- 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.
- 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.
- Heijdra, Ben J. & Mierau, Jochen O. & Reijnders, Laurie S.M., 2011.
"The Tragedy of Annuitization,"
268, Institute for Advanced Studies.
- Mierau, Jochen O. & Heijdra, Ben J. & Trimborn, Timo, 2014.
"Stimulating Annuity Markets,"
14015-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- 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.
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