The Equilibrium Effects of Mortality Risk

Andrea Modena (), Luca Regis () and Giorgio Rizzini ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In this paper, we invesstigate how mortality risk affects agents optimal decisions and asset prices within a general equilibrium framework. In our model, risk averse households facing a stochastic mortality rate allocate their net worth among consumption, risky capital production, and risk-free bonds to maximise intertemporal utility. In this setting, we show that a negative and time-varying correlation exists between mortality and risky asset prices, even when production and mortality risks are mutually independent. The correlation arises because higher mortality rates reduce the incentive to save for the future, leading to increased current consumption and decreased capital investment. As a result, higher mortality lowers the prices of risky capital and raises the risk-free rate in equilibrium. Calibrated simulations suggest that endogenous price effects account for the largest share of welfare gains and losses following sharp changes in mortality, such as pandemics or rapid increases in longevity.

Keywords: equilibrium; mortality risk; portfolio choice; stochastic optimal control (search for similar items in EconPapers)
JEL-codes: C6 G11 G52 (search for similar items in EconPapers)
Pages: 29
Date: 2025-10
New Economics Papers: this item is included in nep-dge, nep-hea, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp709 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_709

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().