Consumption over the Life Cycle: The Role of Annuities

Gary Hansen () and Selahattin Imrohoroglu ()

Review of Economic Dynamics, 2008, vol. 11, issue 3, pages 566-583

Abstract: We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption displays a hump shape over the life cycle. Our model exhibits life cycle consumption that is consistent with this pattern. Our calibrated model, which includes an unfunded social security system, displays a hump shape but the peak occurs later in the life cycle than in the data. Adding a bequest motive causes this decline to begin at a younger age. (Copyright: Elsevier)

Keywords: Life cycle consumption; General equilibrium; Annuity markets; Social security; Bequests (search for similar items in EconPapers)
JEL-codes: E2 D91 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Consumption Over the Life Cycle: The Role of Annuities (2006)
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