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Social Security, Life Insurance and Annuities for Families

Author

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  • Jay Hong
  • Jose-Victor Rios-Rull

    () (Economics University of Pennsylvania)

Abstract

We revisit the issue of the usefulness of Social Security when there are frictions that prevent the existence of a fluid market for annuities. We model households as families and not as individual agents which provides a rationale for the existence of life insurance. Moreover, our structure also allows us to incorporate altruism towards dependents, providing for a unified picture of the various risks associated to the timing of death. The simultaneous existence of widespread life insurance and very limited annuities holdings is part of our quest. We want to know whether the lack of annuities is a product of the existence of social security or whether it is due to more fundamental problems (the moral hazard of house ownership, the adverse selection that it is way harder to detect in the case of long lived than in those that are likely to die soon). In our research we will explore various possible configurations of privately provided annuities (from inexistence to fully and cheaply provided to expensive and limited to financial and non housing levels), and how their existence is affected by Social Security, both in its basic form and in its Survivors Benefits program.

Suggested Citation

  • Jay Hong & Jose-Victor Rios-Rull, 2006. "Social Security, Life Insurance and Annuities for Families," 2006 Meeting Papers 410, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:410
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    References listed on IDEAS

    as
    1. Julio Dávila & Jay H. Hong & Per Krusell & José‐Víctor Ríos‐Rull, 2012. "Constrained Efficiency in the Neoclassical Growth Model With Uninsurable Idiosyncratic Shocks," Econometrica, Econometric Society, vol. 80(6), pages 2431-2467, November.
    2. Abel, Andrew B, 1986. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," Econometrica, Econometric Society, vol. 54(5), pages 1079-1097, September.
    3. Jay H. Hong & José-Víctor Ríos-Rull, 2012. "Life Insurance and Household Consumption," American Economic Review, American Economic Association, vol. 102(7), pages 3701-3730, December.
    4. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
    5. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
    6. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-646, September.
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    Citations

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    Cited by:

    1. Gao, Jin & Ulm, Eric R., 2015. "Optimal allocation and consumption with guaranteed minimum death benefits, external income and term life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 61(C), pages 87-98.
    2. Alexander Bick, 2011. "Life-Cycle Consumption: Can Single Agent Models Get it Right?," 2011 Meeting Papers 940, Society for Economic Dynamics.
    3. Sekyu Choi, 2010. "Fertility Risk in the Life-Cycle," 2010 Meeting Papers 594, Society for Economic Dynamics.
    4. Alessandro Bucciol & Laura Cavalli & Igor Fedotenkov & Paolo Pertile & Veronica Polin & Nicola Sartor & Alessandro Sommacal, 2015. "Public policies over the life cycle: a large scale OLG model for France, Italy and Sweden," Working Papers 29/2015, University of Verona, Department of Economics.
    5. Shinichi Nishiyama, 2010. "The Joint Labor Supply Decision of Married Couples and the Social Security Pension System," Working Papers wp229, University of Michigan, Michigan Retirement Research Center.
    6. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2012. "Taxation and Household Labour Supply," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1113-1149.
    7. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2013. "Childcare Subsidies and Household Labor Supply," Working Papers 738, Barcelona Graduate School of Economics.
    8. Jay H. Hong & José-Víctor Ríos-Rull, 2012. "Life Insurance and Household Consumption," American Economic Review, American Economic Association, vol. 102(7), pages 3701-3730, December.
    9. Matthew Shapiro & Joseph Briggs & Chris Tonetti & Andrew Caplin & John Ameriks, 2016. "Late-in-Life Risks and the Under-Insurance Puzzle," 2016 Meeting Papers 241, Society for Economic Dynamics.
    10. Bick, Alexander & Choi, Sekyu, 2013. "Revisiting the effect of household size on consumption over the life-cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2998-3011.
    11. R. Anton Braun & Karen A. Kopecky & Tatyana Koreshkova, 2017. "Old, Sick, Alone, and Poor: A Welfare Analysis of Old-Age Social Insurance Programmes," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 580-612.
    12. Sita Slavov & Devon Gorry & Aspen Gorry & Frank N. Caliendo, 2017. "Social Security and Saving: An Update," NBER Working Papers 23506, National Bureau of Economic Research, Inc.
    13. William Peterman, 2014. "A Historical Welfare Analysis of Social Security: Who Did the Program Benefit?," 2014 Meeting Papers 790, Society for Economic Dynamics.
    14. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2017. "Families and social security," European Economic Review, Elsevier, vol. 91(C), pages 30-56.
    15. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2009. "Marital Risk, Family Insurance, and Public Policy," SOEPpapers on Multidisciplinary Panel Data Research 226, DIW Berlin, The German Socio-Economic Panel (SOEP).
    16. Nielsen, Peter Holm & Steffensen, Mogens, 2008. "Optimal investment and life insurance strategies under minimum and maximum constraints," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 15-28, August.
    17. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Reforming Family Taxation in Germany - Labor Supply vs. Insurance Effects," CESifo Working Paper Series 4386, CESifo Group Munich.
    18. Hosseini, Roozbeh & Shourideh, Ali, 2016. "Retirement Financing: An Optimal Reform Approach," MPRA Paper 71613, University Library of Munich, Germany, revised 19 Jan 2016.
    19. Frank Caliendo & Nick Guo & Roozbeh Hosseini, 2014. "Social Security is NOT a Substitute for Annuity Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 739-755, October.
    20. repec:eee:poleco:v:48:y:2017:i:c:p:104-127 is not listed on IDEAS
    21. Peterman, William B. & Sommer, Kamila, 2014. "How Well Did Social Security Mitigate the Effects of the Great Recession?," Finance and Economics Discussion Series 2014-13, Board of Governors of the Federal Reserve System (U.S.).
    22. Nawid Siassi, 2014. "Inequality and the Marriage Gap," 2014 Meeting Papers 941, Society for Economic Dynamics.
    23. Sorizo, Reena Beth & Densing, Filjhon & Tura, Regine & Balacy, Garnette Mae, 2016. "Characterizing Life Insurance Marketing: Clients' Perspectives," MPRA Paper 74941, University Library of Munich, Germany, revised 17 Nov 2016.
    24. Kamila Sommer & William Peterman, 2013. "How Well Did Social Security Mitigate the Effects of the Great Recession?," 2013 Meeting Papers 1150, Society for Economic Dynamics.

    More about this item

    Keywords

    Family Macroeconomics;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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