EconPapers    
Economics at your fingertips  
 

Annuity Markets and Capital Accumulation

Shantanu Bagchi () and James Feigenbaum ()

The B.E. Journal of Theoretical Economics, 2020, vol. 20, issue 1, 10

Abstract: We examine how the absence of annuities in financial markets affects capital accumulation in a two-period overlapping generations model. Our findings indicate that the effect on capital is ambiguous in general equilibrium, because there are two competing mechanisms at work. On the one hand, the absence of annuities increases the price of old-age consumption relative to the price of early-life consumption. This induces a substitution effect that reduces saving and capital, and an income effect that has the opposite effect as households want to consume less when young, causing them to save more. On the other hand, accidental bequests originate from the assets of the deceased under missing annuity markets. The bequest received in early life always has a positive income effect on saving, but the bequest received in old age, conditional on survival, is effectively a partial annuity with both substitution and income effects. We find that when the desire to smooth consumption is high, the income effects dominate, so the capital stock always increases when annuity markets are missing. However, when the desire to smooth consumption is low, the substitution effects dominate, and the capital stock decreases with missing annuity markets.

Keywords: mortality risk; frictionless annuities; accidental bequests; savings; capital stock (search for similar items in EconPapers)
JEL-codes: D15 D52 E21 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1515/bejte-2018-0055 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Annuity Markets and Capital Accumulation (2018) Downloads
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:bpj:bejtec:v:20:y:2020:i:1:p:10:n:6

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/bejte

DOI: 10.1515/bejte-2018-0055

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

 
Page updated 2022-01-16
Handle: RePEc:bpj:bejtec:v:20:y:2020:i:1:p:10:n:6