The presence of a hump shaped lifetime consumption profile is a well known puzzle from the perspective of a lifecycle model with complete markets—why don’t individuals simply smooth consumption over the length of their life? Recent literature that addresses this question [e.g. Carroll (1997) and Gourinchas and Parker (2002)] has emphasized the importance of precautionary saving in the face of income uncertainty. In addition to this, Fernández-Villarverde and Kruger (2001) have argued the importance of accumulation of consumer durables early in life. In this paper, we use a calibrated version of a standard general equilibrium lifecycle model to demonstrate the importance of uncertainty in the length of life, and the absence of a complete set of annuity markets, in generating lifecycle consumption profiles similar to ones estimated from data. Individuals in our model face no income uncertainty. Our model is one in which individuals hold assets that are claims to capital used in production. In addition, a worker’s productivity depends on his/her age, and individuals, who value leisure, will vary their work effort over their life in response to this. This turns out to have some secondary importance for the shape of the consumption profile. We also consider whether introducing old age transfer programs, such as a pay-as-you-go social security system, mitigate the consequences of a lack of annuity markets. Preliminary results indicate that they have relatively little effect.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
816.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:816
Contact details of provider: Postal: Society for Economic Dynamics Anne Stubing CV Starr Center for Applied Economics 269 Mercer Street, Room 303 New York University New York, NY 10003 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/society.htm More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).