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Consumption over the Life Cycle: The Role of Annuities

Author

Listed:
  • Gary Hansen

    (University of California, Los Angeles)

  • Selahattin Imrohoroglu

    (University of Southern California)

Abstract

We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption displays a hump shape over the life cycle. Our model exhibits life cycle consumption that is consistent with this pattern. Our calibrated model, which includes an unfunded social security system, displays a hump shape but the peak occurs later in the life cycle than in the data. Adding a bequest motive causes this decline to begin at a younger age. (Copyright: Elsevier)

Suggested Citation

  • Gary Hansen & Selahattin Imrohoroglu, 2008. "Consumption over the Life Cycle: The Role of Annuities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.
  • Handle: RePEc:red:issued:06-155
    DOI: 10.1016/j.red.2007.12.004
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Life cycle consumption; General equilibrium; Annuity markets; Social security; Bequests;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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