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Rational Impatience ?

  • Antoine Bommier

    ()

    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - INRA : UMR)

This paper introduces a life-cycle model where impatience, instead of being driven by an exogenous discount function, results from the combination of risk aversion and mortality risks. Opting for such a formulation provides novel views on the impact of longevity extension on welfare, saving behavior and capital accumulation. In particular, we show that longevity extension may have much larger impacts on capital accumulation and equilibrium rate of interest than is usually thought. Moreover, we show that the adherence to the additive life cycle model introduced by Yaari (1965) may lead to significantly overstimating the welfare gains due to mortality risk reduction.

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Paper provided by HAL in its series Working Papers with number hal-00441880.

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Date of creation: 11 Apr 2008
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Handle: RePEc:hal:wpaper:hal-00441880
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00441880/en/
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  1. Villeneuve, Bertrand & Bommier, Antoine, 2012. "Risk Aversion and the Value of Risk to Life," Economics Papers from University Paris Dauphine 123456789/4812, Paris Dauphine University.
  2. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  3. Antoine Bommier, 2001. "Uncertain lifetime and intertemporal choice : risk aversion as a rationale for time discounting," Research Unit Working Papers 0108, Laboratoire d'Economie Appliquee, INRA.
  4. Scott F. Richard, 1975. "Multivariate Risk Aversion, Utility Independence and Separable Utility Functions," Management Science, INFORMS, vol. 22(1), pages 12-21, September.
  5. Robert E. Hall & Charles I. Jones, 2005. "The value of life and the rise in health spending," Proceedings, Federal Reserve Bank of San Francisco.
  6. Francisco Gomes & Alexander Michaelides, 2003. "Portfolio Choice With Internal Habit Formation: A Life-Cycle Model With Uninsurable Labor Income Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 729-766, October.
  7. Rajnish Mehra & Edward C. Prescott, 2003. "The Equity Premium in Retrospect," NBER Working Papers 9525, National Bureau of Economic Research, Inc.
  8. Kevin M. Murphy & Robert H. Topel, 2005. "The Value of Health and Longevity," NBER Working Papers 11405, National Bureau of Economic Research, Inc.
  9. Arthur Robson & Larry Samuelson, 2008. "The Evolution of Decision and Experienced Utilities," Cowles Foundation Discussion Papers 1678, Cowles Foundation for Research in Economics, Yale University, revised Feb 2010.
  10. Eytan Sheshinski, 2009. "Longevity and Aggregate Savings," Discussion Paper Series dp519, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  11. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
  12. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2005. "The Quantity and Quality of Life and the Evolution of World Inequality," American Economic Review, American Economic Association, vol. 95(1), pages 277-291, March.
  13. van der Ploeg, Frederick, 1993. "A Closed-Form Solution for a Model of Precautionary Saving," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 385-95, April.
  14. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  15. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  16. Kihlstrom, Richard E. & Mirman, Leonard J., 1974. "Risk aversion with many commodities," Journal of Economic Theory, Elsevier, vol. 8(3), pages 361-388, July.
  17. Raouf Boucekkine & David de la Croix & Omar Licandro, . "vintage human capital, demographic trends and endogenous growth," Working Papers 2000-02, FEDEA.
  18. George J. Stigler, 1950. "The Development of Utility Theory. II," Journal of Political Economy, University of Chicago Press, vol. 58, pages 373.
  19. Antoine Bommier & Jean-Charles Rochet, 2006. "Risk Aversion and Planning Horizons," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 708-734, 06.
  20. Jeffrey Brown & Jeffrey B. Liebman & Joshua Pollet, 2002. "Appendix. Estimating Life Tables That Reflect Socioeconomic Differences In Mortality," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 447-458 National Bureau of Economic Research, Inc.
  21. Antoine Bommier & Ronald D. Lee, 2003. "Overlapping generations models with realistic demography," Journal of Population Economics, Springer, vol. 16(1), pages 135-160, 02.
  22. Sandra J. Peart, 2000. "Irrationality and intertemporal choice in early neoclassical thought," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 175-189, February.
  23. Siegel, Jeremy J., 1992. "The real rate of interest from 1800-1990 : A study of the U.S. and the U.K," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 227-252, April.
  24. Ahn, Chang Mo, 1989. " The Effect of Temporal Risk Aversion on Optimal Consumption, the Equity Premium, and the Equilibrium Interest Rate," Journal of Finance, American Finance Association, vol. 44(5), pages 1411-20, December.
  25. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  26. Valery Polkovnichenko, 2007. "Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk," Review of Financial Studies, Society for Financial Studies, vol. 20(1), pages 83-124, January.
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