We revisit the issue of the usefulness of Social Security when there are frictions that prevent the existence of a fluid market for annuities. We model households as families and not as individual agents which provides a rationale for the existence of life insurance. Moreover, our structure also allows us to incorporate altruism towards dependents, providing for a unified picture of the various risks associated to the timing of death. The simultaneous existence of widespread life insurance and very limited annuities holdings is part of our quest. We want to know whether the lack of annuities is a product of the existence of social security or whether it is due to more fundamental problems (the moral hazard of house ownership, the adverse selection that it is way harder to detect in the case of long lived than in those that are likely to die soon). In our research we will explore various possible configurations of privately provided annuities (from inexistence to fully and cheaply provided to expensive and limited to financial and non housing levels), and how their existence is affected by Social Security, both in its basic form and in its Survivors Benefits program.
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
410.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:410
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Find related papers by JEL classification: D10 - Microeconomics - - Household Behavior - - - General J10 - Labor and Demographic Economics - - Demographic Economics - - - General E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General