The Effect of Annuity Insurance and Savings and Inequality

Laurence Kotlikoff, John Shoven and Avia Spivak

Journal of Labor Economics, 1986, vol. 4, issue 3, S183-207

Abstract: This paper examines the amount of precautionary savings and wealth inequality arising from life-span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements, namely, when longevity risk can be pooled only with members of one's own family. The central findings of the paper are: (1) perfecting insurance arrangements can lower savings in intergenerationally altruistic and life-cycle economies and (2) in altruistic economies perfecting annuity insurance can influence in-equality; indeed, in the long run in the model, switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality. Copyright 1986 by University of Chicago Press.

Date: 1986
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