The Tragedy of Annuitization

Heijdra, Ben J.; Mierau, Jochen O. and Reijnders, Laurie S.M. (May 2011) The Tragedy of Annuitization. Former Series > Working Paper Series > IHS Economics Series 268


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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.;

Item Type: IHS Series
Keywords: 'Longevity risk' 'Risk sharing' 'Overlapping generations' 'Intergenerational transfers' 'Annuity markets'
Classification Codes (e.g. JEL): D52, D91, E10, J20
Date Deposited: 26 Sep 2014 10:39
Last Modified: 26 Sep 2019 16:34
ISBN: 1605-7996

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