The Tragedy of Annuitization
We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.
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- Heijdra, Ben J. & Mierau, Jochen O. & Reijnders, Laurie S.M., 2011.
"The Tragedy of Annuitization,"
268, Institute for Advanced Studies.
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