Effects of uncertain lifetime and annuity insurance on capital accumulation and growth
AbstractThis 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 InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 249.
Date of creation: Jan 1998
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Web page: http://www.econ.upf.edu/
Asymptotic growth; convex technology; uncertain lifetimes; accidental bequest; perfect annuities market;
Other versions of this item:
- Luisa Fuster, 1999. "Effects of uncertain lifetime and annuity insurance on capital accumulation and growth," Economic Theory, Springer, vol. 13(2), pages 429-445.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- 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
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- Larry E. Jones & Rodolfo E. Manuelli, 1990.
"Finite Lifetimes and Growth,"
NBER Working Papers
3469, National Bureau of Economic Research, Inc.
- Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
- Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
- 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.
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