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Effects of uncertain lifetime and annuity insurance on capital accumulation and growth

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  • Luisa Fuster

Abstract

This paper studies the effects of uncertain lifetime on capital accumulation and growth and also the sensitivity of those effects to the existence of a perfect annuities market. The model is an overlapping generations model with uncertain lifetimes. The technology is convex and such that the marginal product of capital is bounded away from zero. A contribution of this paper is to show that the existence of accidental bequests may lead the economy to an equilibrium that exhibits asymptotic growth, which is impossible in an economy with a perfect annuities market or with certain lifetimes. This paper also shows that if individuals face a positive probability of surviving in every period, they may be willing to save at any age. This effect of uncertain lifetime on savings may also lead the economy to an equilibrium exhibiting asymptotic growth even if there exists a perfect annuities market.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 249.

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Date of creation: Jan 1998
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Handle: RePEc:upf:upfgen:249

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Web page: http://www.econ.upf.edu/

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Keywords: Asymptotic growth; convex technology; uncertain lifetimes; accidental bequest; perfect annuities market;

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References

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  1. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
  2. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
  3. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  4. Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
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Cited by:
  1. Xavier Mateos-Planas, 2002. "The Demographic Transition in Europe: A Neoclassical Dynastic Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 646-680, July.
  2. Abdelkrim Seghir & Juan Pablo Torres-Martinez, 2006. "Wealth transfers and the role of collateral when lifetimes are uncertain," Textos para discussão 527, Department of Economics PUC-Rio (Brazil).
  3. Mizushima, Atsue, 2009. "Intergenerational transfers of time and public long-term care with an aging population," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 572-581, December.
  4. Heijdra, Ben J. & Mierau, Jochen O., 2012. "The individual life-cycle, annuity market imperfections and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 876-890.
  5. Ito, Hiroyuki & Tabata, Ken, 2008. "Demographic structure and growth: The effect of unfunded social security," Economics Letters, Elsevier, vol. 100(2), pages 288-291, August.
  6. Robin Mason & Helen Weeds, 2000. "Networks, Options and Preemption," Econometric Society World Congress 2000 Contributed Papers 1721, Econometric Society.
  7. Mateos-Planas, Xavier, 2000. "The European demographic transition," Discussion Paper Series In Economics And Econometrics 0031, Economics Division, School of Social Sciences, University of Southampton.
  8. Gutiérrez Huerta, María José & Iza Padilla, María Amaya & Agnani, Betty, 2004. "Growth in Overlapping Generation Economies with Non-Renewable Resources," DFAEII Working Papers 2002-22, University of the Basque Country - Department of Foundations of Economic Analysis II.
  9. Echevarria, Cruz A. & Iza, Amaia, 2006. "Life expectancy, human capital, social security and growth," Journal of Public Economics, Elsevier, vol. 90(12), pages 2323-2349, December.
  10. Kazutoshi Miyazawa, 2005. "Growth and inequality: a demographic explanation," LSE Research Online Documents on Economics 6546, London School of Economics and Political Science, LSE Library.
  11. Osang, Thomas & Sarkar, Jayanta, 2005. "Endogenous Mortality, Human Capital and Endogenous Growth," Departmental Working Papers 0511, Southern Methodist University, Department of Economics.
  12. Lines, Marji, 2001. "The dynamics of capital accumulation in an overlapping generations model," Structural Change and Economic Dynamics, Elsevier, vol. 12(1), pages 75-89, March.
  13. Sven H. Sinclair & Kent A. Smetters, 2004. "Health Shocks and the Demand for Annuities: Technical Paper 2004-09," Working Papers 15868, Congressional Budget Office.
  14. Tabata, Ken, 2005. "Population aging, the costs of health care for the elderly and growth," Journal of Macroeconomics, Elsevier, vol. 27(3), pages 472-493, September.

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