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Retirement with Perfect Insurance

Author

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  • Grzegorz Kula

    (Faculty of Economics, Erasmus University Rotterdam)

Abstract

This paper focuses on the relation between worker's productivity and retirement decision. Assuming that productivity follows geometric Brownian motion with drift, there exists such a level of productivity for which it is optimal to retire. The worker buys an insurance, which gives a constant income and retirement benefits in exchange for the total output. The level of income and benefits is set to maximize lifetime utility. In such framework we find the retirement threshold of productivity and the probability of retirement.

Suggested Citation

  • Grzegorz Kula, 2003. "Retirement with Perfect Insurance," Tinbergen Institute Discussion Papers 03-097/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20030097
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    References listed on IDEAS

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    More about this item

    Keywords

    retirement; insurance; productivity;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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