The Tragedy of Annuitization

Ben Heijdra (), Jochen Mierau and Laurie S.M. Reijnders
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Laurie S.M. Reijnders: Faculty of Economics and Business, University of Groningen, The Netherlands

No 268, Economics Series from Institute for Advanced Studies

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 longrun 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)
Pages: 45 pages
Date: 2011-05
New Economics Papers: this item is included in nep-age and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://irihs.ihs.ac.at/id/eprint/2059 First version, 2011 (application/pdf)

Related works:
Working Paper: The Tragedy of Annuitization (2010)
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