Welfare Effects of Developing the Reverse Mortgage Market in China: An Individual and Social Perspective

Huang Minan (), Chen Bingzheng () and Deng Yinglu ()
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Huang Minan: Department of Finance, School of Economics and Management, Tsinghua University, Beijing, China
Chen Bingzheng: Department of Finance, School of Economics and Management, Tsinghua University, Beijing, China
Deng Yinglu: Department of Finance, School of Economics and Management, Tsinghua University, Beijing, China

Asia-Pacific Journal of Risk and Insurance, 2013, vol. 8, issue 1, 27-55

Abstract: The increasing aging population and social security insufficiency have become serious problems in China. Some developed countries, such as the U.S., Canada, and Japan, have developed reverse mortgage markets as solutions for the aging problem. In this article, a theoretical analysis of the welfare and asset allocation effects from introducing a reverse mortgage market into China, with the overlapping generation model and parameters from Chinese factors, was carried out. The results show that the introduction of a reverse mortgage market improved individual and social welfare. It provides more income for both the older and the younger generations. For the older generation, this can reduce the burden on social security; for the younger generation, this can smooth out lifetime consumption for the individual. By making comparisons among different scenarios, this article shows that the welfare effects from a reverse mortgage market would increase with the aging level of society.

Keywords: reverse mortgage; overlapping generation model; asset allocation; social welfare (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1515/apjri-2013-0012

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