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The equilibrium effects of mortality risk

Author

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  • Modena, Andrea
  • Regis, Luca
  • Rizzini, Giorgio

Abstract

In this paper, we investigate how mortality risk affects agents’ optimal decisions and asset prices within a general equilibrium framework. In our model, risk-averse households facing a stochastic mortality rate allocate their net worth among consumption, risky capital production, and risk-free bonds to maximise intertemporal utility. In this setting, we show that a negative and time-varying correlation exists between mortality and risky asset prices, even when production and mortality risks are mutually independent. The correlation arises because higher mortality rates reduce the incentive to save for the future, leading to increased current consumption and decreased capital investment. As a result, higher mortality lowers the prices of risky capital and raises the risk-free rate in equilibrium. Calibrated simulations suggest that endogenous price effects account for the largest share of welfare gains and losses following sharp changes in mortality, such as the COVID-19 pandemic.

Suggested Citation

  • Modena, Andrea & Regis, Luca & Rizzini, Giorgio, 2026. "The equilibrium effects of mortality risk," Journal of Economic Behavior & Organization, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:jeborg:v:243:y:2026:i:c:s0167268126000508
    DOI: 10.1016/j.jebo.2026.107463
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    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G52 - Financial Economics - - Household Finance - - - Insurance

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