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Effects of uncertain lifetime and annuity insurance on capital accumulation and growth

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  • Luisa Fuster

Abstract

This paper studies the effects of uncertain lifetime on capital accumulation and growth and also the sensitivity of those effects to the existence of a perfect annuities market. The model is an overlapping generations model with uncertain lifetimes. The technology is convex and such that the marginal product of capital is bounded away from zero. A contribution of this paper is to show that the existence of accidental bequests may lead the economy to an equilibrium that exhibits asymptotic growth, which is impossible in an economy with a perfect annuities market or with certain lifetimes. This paper also shows that if individuals face a positive probability of surviving in every period, they may be willing to save at any age. This effect of uncertain lifetime on savings may also lead the economy to an equilibrium exhibiting asymptotic growth even if there exists a perfect annuities market.

Suggested Citation

  • Luisa Fuster, 1998. "Effects of uncertain lifetime and annuity insurance on capital accumulation and growth," Economics Working Papers 249, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:249
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    References listed on IDEAS

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    1. Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
    2. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    3. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
    4. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    5. Laurence J. Kotlikoff, 1989. "What Determines Savings?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611872, April.
    6. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
    7. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-791, September.
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    Cited by:

    1. Abdelkrim Seghir & Juan Torres-Martínez, 2008. "Wealth transfers and the role of collateral when lifetimes are uncertain," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(3), pages 471-502, September.
    2. Mason, R. & Weeds, H., 2000. "Networks, options and preemptions," Discussion Paper Series In Economics And Econometrics 0013, Economics Division, School of Social Sciences, University of Southampton.
    3. Pelgrin, Florian & Venditti, Alain, 2022. "On the long-run fluctuations of inheritance in two-sector OLG models," Journal of Mathematical Economics, Elsevier, vol. 101(C).
    4. Mateos-Planas, Xavier, 2000. "The European demographic transition," Discussion Paper Series In Economics And Econometrics 31, Economics Division, School of Social Sciences, University of Southampton.
    5. Kazutoshi Miyazawa, 2006. "Growth and inequality: a demographic explanation," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 559-578, July.
    6. Weiguang Liu, 2021. "Human capital accumulation, income protection insurance and poverty reduction in the least developed countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 361-372, June.
    7. Chiara Canta & Pierre Pestieau & Emmanuel Thibault, 2016. "Long-term care and capital accumulation: the impact of the State, the market and the family," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(4), pages 755-785, April.
    8. Ben J. Heijdra & Jochen O. Mierau, 2009. "Annuity Market Imperfection, Retirement and Economic Growth," CESifo Working Paper Series 2717, CESifo.
    9. Mateos-Planas, Xavier, 2000. "The European demographic transition," Discussion Paper Series In Economics And Econometrics 0031, Economics Division, School of Social Sciences, University of Southampton.
    10. Sven H. Sinclair & Kent A. Smetters, 2004. "Health Shocks and the Demand for Annuities: Technical Paper 2004-09," Working Papers 15868, Congressional Budget Office.
    11. Mizushima, Atsue, 2009. "Intergenerational transfers of time and public long-term care with an aging population," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 572-581, December.
    12. Ken‐ichi Hashimoto & Ken Tabata, 2016. "Demographic change, human capital accumulation and R&D‐based growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 707-737, May.
    13. Ito, Hiroyuki & Tabata, Ken, 2008. "Demographic structure and growth: The effect of unfunded social security," Economics Letters, Elsevier, vol. 100(2), pages 288-291, August.
    14. repec:fth:sotoec:0031 is not listed on IDEAS
    15. Lisi Shi & Richard M. H. Suen, 2014. "The Macroeconomic Consequences of Asset Bubbles and Crashes," Working papers 2014-14, University of Connecticut, Department of Economics.
    16. Tabata, Ken, 2005. "Population aging, the costs of health care for the elderly and growth," Journal of Macroeconomics, Elsevier, vol. 27(3), pages 472-493, September.
    17. Agnani, Betty & Gutierrez, Maria-Jose & Iza, Amaia, 2005. "Growth in overlapping generation economies with non-renewable resources," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 387-407, September.
    18. Xavier Mateos-Planas, 2002. "The Demographic Transition in Europe: A Neoclassical Dynastic Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 646-680, July.
    19. Osang, Thomas & Sarkar, Jayanta, 2005. "Endogenous Mortality, Human Capital and Endogenous Growth," Departmental Working Papers 0511, Southern Methodist University, Department of Economics.
    20. Lines, Marji, 2001. "The dynamics of capital accumulation in an overlapping generations model," Structural Change and Economic Dynamics, Elsevier, vol. 12(1), pages 75-89, March.

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    More about this item

    Keywords

    Asymptotic growth; convex technology; uncertain lifetimes; accidental bequest; perfect annuities market;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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