Efficiency in overlapping generations economies with longevity choices and fair annuities
(2015) Journal of Macroeconomics — Vol. 45, p. 363-383 (2015)
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- Authors
Davila Muro, Julio 
- Abstract
- When individuals can influence their life-expectancies and save in annuities, suboptimal savings result from the lack of incentives to choose the optimal longevity, even when annuity returns can be made contingent to longevity-related choices. Specifically, the golden rule steady state maximizing the representative agent utility cannot be attained as a competitive equilibrium under laissez-faire, even with actuarially fair annuities contingent to longevity-enhancing choices. In order to decentralize through markets the golden rule, longevity-enhancing expenditures need to be taxed if the steady state old-age consumption exceeds the annuitized capital return, and subsidized otherwise—the government budget being balanced through lump-sum transfers or taxes. Interestingly, with positive population growth the expected net contribution is negative when longevity-enhancing expenditures are taxed, and positive when subsidized.
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Citations
Davila Muro, J., & Leroux, M.-L. (2015). Efficiency in overlapping generations economies with longevity choices and fair annuities. Journal of Macroeconomics, 45, 363-383. https://hdl.handle.net/2078.5/190753 (Original work published 2015)