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Efficiency in overlapping generations economies with longevity choices and fair annuities

Author

Listed:
  • Julio Dávila

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Marie-Louise Leroux

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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Suggested Citation

  • Julio Dávila & Marie-Louise Leroux, 2015. "Efficiency in overlapping generations economies with longevity choices and fair annuities," Post-Print halshs-03096239, HAL.
    • Handle: RePEc:hal:journl:halshs-03096239
    DOI: 10.1016/j.jmacro.2015.06.002
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    Cited by:

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    2. Leroux, Marie-Louise & Pestieau, Pierre & Ponthière, Grégory, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497, Décembre.
    3. d’Albis, Hippolyte & Kalk, Andrei, 2021. "Why do we postpone annuity purchases?," Journal of Mathematical Economics, Elsevier, vol. 95(C).

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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