A tragedy of annuitization? Longevity insurance in general equilibrium

Ben J. Heijdra; Jochen O. Mierau; S. M. Reijnders

doi:10.1017/s1365100513000072

A tragedy of annuitization? Longevity insurance in general equilibrium

Ben J. Heijdra^*
, Jochen O. Mierau
, S. M. Reijnders

^*Corresponding author for this work

Economics, Econometrics and Finance

Research output: Contribution to journal › Article › Academic › peer-review

20 Citations (Scopus)

15 Downloads (Pure)

Abstract

We study the microeconomic and macroeconomic effects of longevity insurance. Using a tractable discrete-time overlapping-generations model of a closed economy we first study different types of government redistribution of accidental bequests in general equilibrium. Individuals face longevity risk, as there is a positive probability of passing away before the retirement period. We find nonpathological 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, because of adverse general equilibrium repercussions.

Original language	English
Pages (from-to)	1607-1634
Number of pages	28
Journal	Macroeconomic Dynamics
Volume	18
Issue number	7
DOIs	https://doi.org/10.1017/s1365100513000072
Publication status	Published - Oct-2014

Keywords

Longevity Risk
Risk Sharing
Overlapping Generations
Intergenerational Transfers
Annuity Markets
GROWTH
MODEL
CONSUMPTION
ANNUITIES
CONSUMER
BEQUESTS
WELFARE

Access to Document

10.1017/s1365100513000072

A tragedy of annuitization? Longevity insurance in general equilibriumFinal publisher's version, 369 KBLicence: Taverne

Handle.net

Persistent link

Cite this

@article{01d2ed5236a540d69619ba172133ea56,

title = "A tragedy of annuitization? Longevity insurance in general equilibrium",

abstract = "We study the microeconomic and macroeconomic effects of longevity insurance. Using a tractable discrete-time overlapping-generations model of a closed economy we first study different types of government redistribution of accidental bequests in general equilibrium. Individuals face longevity risk, as there is a positive probability of passing away before the retirement period. We find nonpathological 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, because of adverse general equilibrium repercussions.",

keywords = "Longevity Risk, Risk Sharing, Overlapping Generations, Intergenerational Transfers, Annuity Markets, GROWTH, MODEL, CONSUMPTION, ANNUITIES, CONSUMER, BEQUESTS, WELFARE",

author = "Heijdra, \{Ben J.\} and Mierau, \{Jochen O.\} and Reijnders, \{S. M.\}",

note = "Publisher Copyright: {\textcopyright} 2013 Cambridge University Press.",

year = "2014",

month = oct,

doi = "10.1017/s1365100513000072",

language = "English",

volume = "18",

pages = "1607--1634",

journal = "Macroeconomic Dynamics",

publisher = "Cambridge University Press",

number = "7",

}

TY - JOUR

T1 - A tragedy of annuitization? Longevity insurance in general equilibrium

AU - Heijdra, Ben J.

AU - Mierau, Jochen O.

AU - Reijnders, S. M.

PY - 2014/10

Y1 - 2014/10

N2 - We study the microeconomic and macroeconomic effects of longevity insurance. Using a tractable discrete-time overlapping-generations model of a closed economy we first study different types of government redistribution of accidental bequests in general equilibrium. Individuals face longevity risk, as there is a positive probability of passing away before the retirement period. We find nonpathological 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, because of adverse general equilibrium repercussions.

AB - We study the microeconomic and macroeconomic effects of longevity insurance. Using a tractable discrete-time overlapping-generations model of a closed economy we first study different types of government redistribution of accidental bequests in general equilibrium. Individuals face longevity risk, as there is a positive probability of passing away before the retirement period. We find nonpathological 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, because of adverse general equilibrium repercussions.

KW - Longevity Risk

KW - Risk Sharing

KW - Overlapping Generations

KW - Intergenerational Transfers

KW - Annuity Markets

KW - GROWTH

KW - MODEL

KW - CONSUMPTION

KW - ANNUITIES

KW - CONSUMER

KW - BEQUESTS

KW - WELFARE

UR - https://www.scopus.com/pages/publications/84898481975

U2 - 10.1017/s1365100513000072

DO - 10.1017/s1365100513000072

M3 - Article

VL - 18

SP - 1607

EP - 1634

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

IS - 7

ER -

A tragedy of annuitization? Longevity insurance in general equilibrium

Abstract

Keywords

Access to Document

Handle.net

Other files and links

Fingerprint

Cite this