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Title:The tragedy of annuitization PDF Logo
Authors:Heijdra, Ben J.
Mierau, Jochen O.
Reijnders, Laurie S. M.
Issue Date:2010
Series/Report no.:CESifo working paper Public Finance 3141
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.
Subjects:longevity risk
risk sharing
overlapping generations
intergenerational transfers
annuity markets
JEL:D52
D91
E10
J20
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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