Wives are typically younger than their husbands and women typically live longer than men. These two facts mean that for a typical married couple, wives have more incentive to save for old age than do husbands. This paper presents a theoretical model of the determination of household saving and portfolio choice taking into account differences in preferences for saving. The model is a non-cooperative game in which each person can use their own current income to contribute to current (household) consumption or to a range of assets. The results derived are in marked contrast to 'unitary' models of intertemporal allocation that assume a single household utility function and conclude that saving is unaffected by the distribution of income within the household. The most important result is that the level and the composition (portfolio) of savings and the time path of consumption is highly dependent on the distribution of income within the household. It is also shown that the introduction of an actuarially fair state pension scheme may have non-neutral effects on saving. Finally it is shown that households may invest in both an annuity and insurance for the same person which is not possible in a unitary model.
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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
96-09.
Length: 32 pages Date of creation: May 1994 Date of revision:
Jan 1996 Publication status: Published in: Scandinavian Journal of Economics, 2000, 102(2) pp 235-51 Handle: RePEc:kud:kuiedp:9609
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
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