Efficiency in overlapping generations economies with longevity choices and fair annuities

Julio Dávila and Marie-Louise Leroux

Journal of Macroeconomics, 2015, vol. 45, issue C, 363-383

Abstract: When individuals can influence their life-expectancies and save in annuities, suboptimal savings result from the lack of incentives to choose the optimal longevity, even when annuity returns can be made contingent to longevity-related choices. Specifically, the golden rule steady state maximizing the representative agent utility cannot be attained as a competitive equilibrium under laissez-faire, even with actuarially fair annuities contingent to longevity-enhancing choices. In order to decentralize through markets the golden rule, longevity-enhancing expenditures need to be taxed if the steady state old-age consumption exceeds the annuitized capital return, and subsidized otherwise—the government budget being balanced through lump-sum transfers or taxes. Interestingly, with positive population growth the expected net contribution is negative when longevity-enhancing expenditures are taxed, and positive when subsidized.

Keywords: Fair annuity pricing; Overlapping generations; Longevity-enhancing behavior (search for similar items in EconPapers)
JEL-codes: E20 E60 H21 H31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Efficiency in overlapping generations economies with longevity choices and fair annuities (2015)
Working Paper: Efficiency in overlapping generations economies with longevity choices and fair annuities (2015)
Working Paper: Efficiency in overlapping generations economies with longevity choices and fair annuities (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:45:y:2015:i:c:p:363-383

DOI: 10.1016/j.jmacro.2015.06.002

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