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Stimulating annuity markets*

Published online by Cambridge University Press:  13 April 2016

BEN J. HEIJDRA ,
JOCHEN O. MIERAU  and
TIMO TRIMBORN
BEN J. HEIJDRA
Affiliation:
Faculty of Economics and Business, University of Groningen, CESifo, Netspar, Groningen, The Netherlands
JOCHEN O. MIERAU
Affiliation:
Faculty of Economics and Business, University of Groningen, Netspar, Groningen, The Netherlands
TIMO TRIMBORN
Affiliation:
Vienna University of Technology, Institute of Statistics and Mathematical Methods in Economics, Vienna, Austria (e-mail: [email protected])
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Abstract

We study the short-, medium-, and long-run implications of stimulating annuity markets in a dynamic general-equilibrium overlapping-generations model. We find that beneficial partial-equilibrium effects of stimulating annuity markets are counteracted by negative general-equilibrium repercussions. Balancing the positive partial-equilibrium and negative general-equilibrium forces we show that there exists an intermediate level of annuitization such that the lifetime utility of steady-state agents is maximized. Studying the transition to this optimal degree of annuitization shows that currently middle-aged individuals stand to gain most from the stimulation of annuity markets. Complementing our main analysis, we highlight the centrality of the interplay between human-capital accumulation and annuity market policy.

Keywords

C68D91J14H55Individual welfareannuity marketscomputable general equilibriumoverlapping generations
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Issue 4 , October 2017 , pp. 554 - 583
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

*

We thank the editor, David Love, and two anonymous referees for useful comments and suggestions. We also thank Fabian Kindermann, Laurie Reijnders and seminar participants at the Universities of New South Wales, Nuremberg, Göttingen, and Würzburg as well at the Society for the Advancement of Economic Theory, the Netherlands Economists Day, and the Paris Overlapping Generations Workshop for helpful comments and suggestions. The authors declare that they have no conflict of interest.

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