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The individual life-cycle, annuity market imperfections and economic growth

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  • Heijdra, Ben J.
  • Mierau, Jochen O.

Abstract

We study the effects of an annuity market imperfection on individual agents' life-cycle decisions and on the macroeconomic growth rate in an overlapping generations model with single-sector endogenous growth. Our model features both age-dependent mortality and labour productivity. We model imperfect annuities by introducing a load factor on the annuity rate faced by finitely lived agents. Our main finding is that annuity market imperfections decrease economic growth because less assets are necessary for consumption late in life. In addition we find that both the quantitative and qualitative effects of annuity market imperfections are grossly overestimated in a partial equilibrium analysis because it disregards general equilibrium repercussions.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:6:p:876-890
    DOI: 10.1016/j.jedc.2012.01.001
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    More about this item

    Keywords

    Annuity markets; Retirement; Endogenous growth; Overlapping generations; Demography;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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