Collective Annuities and Redistribution

This paper studies the role of alternative pension systems that offer collective annuities. The defining characteristic of collective annuities is that they do not depend on an individual's survival probabilities. We show that such a system may be welfare improving (with a utilitarian social welfare function) even when private annuity markets are perfect and when life expectancy and earning abilities are positively correlated (i.e., in a setting that is  a priori  biased against collective annuities). We first concentrate on linear pension systems and contrast two schemes: a pure contributory (Bismarckian) pension and a flat rate (Beveridgean) pension. We show that the case for collective annuities is stronger when they are associated with a flat pension system. Then we analyze nonlinear pension schemes. We show that the solution can be implemented by a pension scheme associated with annuities that reflect some degree of "collectiveness." Unlike under pure collective annuities, benefits do depend on life expectancy but to a lesser degree than with actuarially fair private annuities. In other words, the impact of survival probabilities is mitigated rather than completely neutralized.     

Public pension policy and the equity–efficiency trade-off∗

This paper illustrates that the equity–efficiency trade-off between a redistributive, Beveridgean, pension system and an earnings-based, Bismarckian, scheme can collapse when accounting for labor supply effects on the extensive margins. I introduce a general equilibrium overlapping generations model with endogenous savings, human capital formation, and labor supply. The model is calibrated to an average OECD economy. The results suggest that allocating funds towards a Bismarckian pension system always reduces earnings inequality – and, in some cases, lifetime inequality – when compared with a Beveridgean scheme. However, the Bismarckian scheme crowds out more human capital in the economy following a higher steady-state interest rate.     

Illiquid life annuities

In this paper, we consider illiquid life annuity contracts and show that they may be preferred to those illustrated by Yaari. In an overlapping generations economy, liquid life annuities are demanded only if the equilibrium is dynamically inefficient. However, an equilibrium displaying a positive demand for illiquid life annuities is indeed efficient. In this latter case, the welfare at steady state is larger if illiquid life annuity contracts are available.     

ENDOGENOUS HEALTH CARE, LIFE EXPECTANCY AND ECONOMIC GROWTH

We study the endogenous relationship between health care, life expectancy and output in a neoclassical growth model. Although health care directly diverts resources away from goods production, it prolongs life expectancy, which in turn leads to higher savings and, hence, capital formation through a private annuity market. We show that savings and health care are complements in equilibrium, with both rising with economic development. Our model is therefore consistent with several observed stylized development patterns across countries. Moreover, through the longevity-enhancing channel, health care and health production technology are found by simulation to be growth and welfare promoting.     

Refundable Annuities (Annuity Options)

Individuals can insure themselves perfectly against uncertainty about the length of life by purchasing deferred annuities early in life. In the absence of other uninsurable uncertainties (e.g., income), there will be no residual purchases or sales of annuities later in life, thereby avoiding any  adverse-selection . In contrast, the presence of such uncertainties creates an active residual annuity market based on the arrival of new information. We characterize the equilibrium in the residual annuity market and propose a new financial instrument,  refundable annuities  with a guaranteed refund price, which enables individuals who hold a portfolio of such annuities to better adjust their optimum consumption plan to different realizations. Refundable annuities are shown to be equivalent to  annuity options , that is, options that, if exercised, enable the purchase of annuities later in life at a predetermined price. Holding a variety of refundable annuities is ( ex ante ) welfare enhancing.     

The dynamics of financial development,globalisation, economic growth and life expectancy in sub‐Saharan Africa

The importance of life expectancy is recognised in the development economics literature because of its increasing effects on labour productivity and economic growth in long‐run. However, no published study to date empirically examines the nonlinear relationships between globalisation, financial development, economic growth and life expectancy in sub‐Saharan African (SSA) countries. Therefore, our study intends to fill this gap by using non‐parametric cointegration test and multivariate Granger causality test towards a non‐linear empirical understanding of the factors affecting the life expectancy. We consider the case of 16 sub‐Saharan African economies using annual data over the period 1970–2012. The empirical analysis indicates that financial development, globalisation and economic growth appear to have a positive impact upon life expectancy in sub‐Saharan African economies, except for Gabon and Togo. Our empirical findings may provide insightful policy implications towards improving population health conditions which are vital for promoting the productivity of labour force and long‐run economic growth in sub‐Saharan African countries. In light of these policy implications, governments should incorporate globalisation, financial development and economic growth as key economic instruments in formulating sustainable developmental policy to promote life expectancy for the people in sub‐Saharan African countries.     

Social security is NOT a substitute for annuity markets

Common wisdom suggests that a fully-funded actuarially fair social security system should increase welfare when households face longevity risk and annuity markets are missing. This wisdom is based on the observation that social security pays benefits as life annuities and therefore appears to complete the market. However, we argue that common wisdom is based on a benefit-only analysis that ignores a fundamental cost—social security crowds out the bequests that households leave (and receive) in general equilibrium. We conduct a general equilibrium cost-benefit analysis of the longevity insurance role of social security, and we show that under certain conditions this decline in bequest income offsets any possible gains from access to a public annuity pool. We abstract from distortions to national income and factor prices to show that the equilibrium bequest channel is all that is needed to reach this conclusion.     

The Design of Pension Pay Out Options When the Health Status during Retirement Is Uncertain

This paper examines the optimal design of pension plans when the health status during retirement is uncertain. Assuming that the health status affects both life expectancy and the marginal utility of consumption, choice between a lump-sum payment and an annuity can be welfare-enhancing if the health status is not observable by pension plan providers. This result holds if the marginal utility of consumption and life expectancy are negatively correlated. On equity grounds, a lump-sum option can be justified even if the marginal utility of consumption is independent of life expectancy.     

Life expectancy and economic development: Evidence from microdata

This study examines the effect of life expectancy on fertility, education, and labor force participation. Using birth and sibling histories from the Demographic Health Surveys conducted in sub‐Saharan Africa, I construct a time series of age‐specific birth rates and mortality rates at the country‐region level. I use these data to test the implications of a general equilibrium model linking life expectancy to fertility, human capital, and labor supply. My results suggest that increases in life expectancy reduce fertility, increase education, and increase labor force participation. Overall, my empirical results suggest that in sub‐Saharan Africa, increases in life expectancy will have a positive impact on growth through fertility, education, and labor supply but that the effect will be small. My results also rule out the possibility that recent shocks to adult mortality in high HIV prevalence countries will reduce fertility, increase labor productivity, and lead to faster growth.     

人口预期寿命与退休年龄

人口寿命的不断延长给中国养老事业带来越来越大的压力.文章在两期交叠世代模型的基础上引入退休,在市场完全竞争、充分就业和政府能够控制退休年龄的假设前提下,在个人、企业和政府的行为以及资本市场均衡的层面构建了一般均衡的模型框架,从社会计划者的角度发现福利最大化下的人口预期寿命变化和退休年龄是正相关的,并呈现出负反比例的函数形式.文章还基于参数估计和赋值模拟的方法,求解出了人口预期寿命与退休年龄的调整算法,并以此给出了两者间的调整对照表.根据计算的结果和预期的寿命,建议2030年前逐步将退休年龄延长至65岁.最后通过检验发现,如果不存在人口预期寿命和退休年龄之间的调整机制,在保持养老金收支平衡的前提下,预期寿命的延长将减少养老金的发放,并可能带来社会福利的损失.因此,在中国人口预期寿命不断延长的背景下,建议政府考虑建立人口预期寿命和退休年龄的调整机制.     

50 is the new 30—long-run trends of schooling and retirement explained by human aging

Workers in the US and other developed countries retire no later than a century ago and spend a significantly longer part of their life in school, implying that they stay less years in the work force. The facts of longer schooling and simultaneously shorter working life are seemingly hard to square with the rationality of the standard economic life cycle model. In this paper we propose a novel theory, based on health and aging, that explains these long-run trends. Workers optimally respond to a longer stay in a healthy state of high productivity by obtaining more education and supplying less labor. Better health increases productivity and amplifies the return on education. The health accelerator allows workers to finance educational efforts with less forgone labor supply than in the previous state of shorter healthy life expectancy. When both life-span and healthy life expectancy increase, the health effect is dominating and the working life gets shorter if the intertemporal elasticity of substitution for leisure is sufficiently small or the return on education is sufficiently large. We calibrate the model and show that it is able to predict the historical trends of schooling and retirement.     

Annuity Values in Defined Contribution Retirement Systems: Australia and Singapore Compared

Annuities promise to play an increasingly important role in countries with national defined contribution retirement systems. In this article we examine life annuities in two countries, Singapore and Australia, each of which has a national mandatory pension program. Exploiting data on annuity pricing and purchase behaviour, we compare the money's worth of life annuity products across these two nations. Our results indicate that, after controlling on administrative loadings, there are important differences in measured adverse selection. Part of the explanation may be due to the different structures of the two countries’retirement systems.     

Years of life lost to revolution and war in Iran

How was life expectancy in Iran affected by the Islamic Revolution and subsequent war with Iraq? This study examines the joint effect of regime change and the war against Iraq on life expectancy in Iran between 1978 and 1988. If there had been no revolution and war in Iran, how would the life expectancy of Iranians have developed? To answer this question, we use a synthetic control model to construct a counterfactual Iran based on a weighted average of other comparable countries, which reproduces the situation of pre-revolution Iran but does not experience the revolution and war. We then compare the life expectancies of the counterfactual and actual Iran that underwent a regime change and war with Iraq. Our results indicate that an average Iranian's total life expectancy would have been approximately five years longer without the revolution and war. The revolution had a moderate long-term impact on total life expectancy at birth, with the most significant influence being attributed to the war itself, particularly on male life expectancy. Our main findings are robust to a series of tests, including placebo tests. We investigate possible reasons that may explain the impact on longevity.     

Human capital and economic development

This paper develops a general equilibrium model of fertility and human capital investment with young adult mortality. Because young adult mortality is negatively related to average young adult human capital, human capital accumulation lowers mortality, inducing demographic transition and industrial revolution. Data confirm that young adult mortality is related negatively to schooling, and the rate of return to schooling, and positively to fertility. The data indicate a negative relationship between TFP growth and schooling accumulation. The model fits the data on country populations, per capita incomes, human capital, total fertility rates, infant mortality, life expectancy and conditional life expectancy.     

Explaining educational attainment across countries and over time

Consider the following facts. In 1950, the richest countries attained an average of 8 years of schooling whereas the poorest countries 1.3 years, a large 6-fold difference. By 2005, the difference in schooling declined to 2-fold because schooling increased faster in poor than in rich countries. What explains educational attainment differences across countries and their evolution over time? We consider an otherwise standard model of schooling featuring non-homothetic preferences and a labor supply margin to assess the quantitative contribution of productivity and life expectancy in explaining educational attainment. A calibrated version of the model accounts for 90 percent of the difference in schooling levels in 1950 between rich and poor countries and 71 percent of the faster increase in schooling over time in poor relative to rich countries. These results suggest an alternative view of the determinants of low education in developing countries that is based on low productivity.     

Firm Size Distribution and Growth*

Abstract Empirical documentation of the sectoral distribution of firm size for a set of European countries reveals substantial differences. We study the relationship between productivity growth at the industry level and size structure. A positive and robust relation is found between average firm size and growth. We ask why size should matter for growth by considering the role of innovation to construct a test based on the differential effect of size on growth according to various indicators of R&D intensity. Our results indicate that larger size fosters productivity growth because it allows firms to take advantage of all the increasing returns associated with R&D. We argue that our test can be interpreted as a test of reverse causality, which lends support to the view that firm size has a causal impact on growth.     

Consumption over the life cycle: The role of annuities

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 displays a hump shape over the life cycle. Our model exhibits life cycle consumption that is consistent with this pattern. Our calibrated model, which includes an unfunded social security system, displays a hump shape but the peak occurs later in the life cycle than in the data. Adding a bequest motive causes this decline to begin at a younger age.     

On the size and structure of group cooperation

When time preferences are heterogeneous and bounded away from one, how “much” cooperation can be achieved by an ongoing group? How does group cooperation vary with the group's size and structure? This paper examines characteristics of cooperative behavior in the class of symmetric, repeated games of collective action. These are games characterized by “free rider problems” in the level of cooperation achieved. The Repeated Prisoner's Dilemma games is a special case.We characterize the level of maximal average cooperation (MAC), the highest average level of cooperation, over all stationary subgame perfect equilibrium paths, that the group can achieve. The MAC is shown to be increasing in monotone shifts, and decreasing in mean preserving spreads of the distribution of discount factors. The latter suggests that more heterogeneous groups are less cooperative on average. Finally, in a class of Prisoner's Dilemma games, we show under weak conditions that the MAC exhibits increasing returns to scale in a range of heterogeneous discount factors. That is, larger groups are more cooperative, on average, than smaller ones. By contrast, when the group has a common discount factor, the MAC is invariant to group size.     

Infrastructure,women’s time allocation,and economic development

This paper develops a gender-based OLG model of endogenous growth to analyze the impact of infrastructure on women’s time allocation between market work, raising children, own health care, and home production, and its implications for education and health outcomes. Women’s health status in adulthood, which affects productivity and wages, depends on their health status in childhood. Threshold effects in health and life expectancy, associated with access to infrastructure, may generate multiple development regimes. Whether an increase in government investment in infrastructure succeeds in shifting the economy to a high-growth equilibrium depends crucially on how women reallocate their time and the strength of congestion effects.     

中国分城镇乡村人口平均预期寿命探析

利用人口普查和人口调查资料,通过生命表的Logit模型估计了2009年全国城镇乡村的人口平均预期寿命,给出了部分普查年份按城乡分年龄性别的预期寿命。分析了近30年来中国平均预期寿命的变化特点,并同发达国家进行了对比分析。其结果可反映中国平均预期寿命的增长趋势,对未来人口发展预测也有一定的参考价值。