The Tragedy of Annuitization

Ben Heijdra (), Jochen Mierau and Laurie S. M. Reijnders

No 3141, CESifo Working Paper Series from CESifo

Abstract: We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.

Keywords: longevity risk; risk sharing; overlapping generations; intergenerational transfers; annuity markets (search for similar items in EconPapers)
JEL-codes: D52 D91 E10 J20 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp3141.pdf (application/pdf)

Related works:
Working Paper: The Tragedy of Annuitization (2011)
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:ces:ceswps:_3141

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().