Life-cycle modeling of bequests and their impact on annuity valuation

Jousten, A
(2001) Conference on Bequests and Wealth Taxation — Location: UNIV LIEGE, LIEGE (Belgium) (15.May.1998)

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  • Jousten, A
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Abstract
In this paper we introduce a linear bequest motive into a standard life-cycle model, both allowing for credit and annuity market imperfections. First, we characterize the consumption and wealth processes. We find that consumption is non-increasing in the linear bequest parameter for the simplest certainty case, but that the same is not true for life-span uncertainty. Second, we study the issue of annuity valuation. For a sufficiently strong bequest motive, the true value of an annuity is equal to the actuarial value. This invalidates a previous claim that, for imperfect annuity markets, it is close to the simple financial value. (C) 2001 Elsevier Science BN. All rights reserved.
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Jousten, A. (2001). Life-cycle modeling of bequests and their impact on annuity valuation. Journal of Public Economics, 79(1), 149-177. https://doi.org/10.1016/S0047-2727(00)00099-2 (Original work published 2001)