Portfolio decisions on life annuities and financial assets with longevity and income uncertainty
AbstractThere are two stylised facts, namely weak demand for life-annuities and flat age-wealth profile that contradict the life-cycle hypothesis. In this paper we design a theoretical framework, which combines plausible arguments, which have been put forward in the literature to reconcile theory with empirical evidence. Besides the existence of an annuity market and of a public pension system we assume risk-averse individuals who are uncertain about lifetime and disposable income and who have preferences for leaving bequests. It is shown that this framework can contribute to explain the observed portfolio decision in favour of financial assets relatively to annuities.
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Bibliographic InfoPaper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2004-14.
Date of creation: Dec 2004
Date of revision:
savings; life annuities; bequests; uncertain lifetime; uncertain income; social security;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-02 (All new papers)
- NEP-HEA-2005-01-02 (Health Economics)
- NEP-MIC-2005-01-02 (Microeconomics)
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