Consumption Over the Life Cycle: The Role of Annuities

Gary Hansen and Selahattin Imrohoroglu

No 12341, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption tends to rise early in life, peak around age 45-55, and to decline after that. Our calibrated model exhibits life cycle consumption that is consistent with this pattern. This follows from the fact that, due to a lack of annuity markets, households discount the future more heavily as they age and their probability of survival falls. Once an unfunded social security system is introduced, the profile is still hump shaped, but the decline in consumption does not begin until after retirement in our base case. Adding a bequest motive causes this decline to begin at a younger age.

JEL-codes: D1 E2 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-dge and nep-mac
Note: EFG
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Published as Gary Hansen & Selahattin Imrohoroglu, 2008. "Consumption over the Life Cycle: The Role of Annuities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.

Downloads: (external link)
http://www.nber.org/papers/w12341.pdf (application/pdf)

Related works:
Journal Article: Consumption over the Life Cycle: The Role of Annuities (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:12341

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12341

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().