The Macroeconomic Effects of Longevity Risk Under Private and Public Insurance and Asymmetric Information

52 Pages Posted: 27 Jan 2018

See all articles by Ben J. Heijdra

Ben J. Heijdra

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Yang Jiang

University of Groningen - Faculty of Economics and Business

Jochen O. Mierau

University of Groningen; Netspar

Date Written: December 05, 2017

Abstract

We study the impact of a fully-funded social security system in an economy with heterogeneous consumers. The unobservability of individual health conditions leads to adverse selection in the private annuity market. Introducing social security — which is immune to adverse selection — affects capital accumulation and individual welfare depending on its size and on the pension benefit rule that is adopted. If this rule incorporates some implicit or explicit redistribution from healthy to unhealthy individuals then the latter types are better off as a result of the pension system. In the absence of redistribution the public pension system makes everybody worse off in the long run. Though attractive to distant generations, privatization of social security is not generally Pareto improving to all generations.

Keywords: social security, annuity market, adverse selection, overlapping generations, redistribution

JEL Classification: D910, E100, H550, J100

Suggested Citation

Heijdra, Ben J. and Jiang, Yang and Mierau, Jochen O., The Macroeconomic Effects of Longevity Risk Under Private and Public Insurance and Asymmetric Information (December 05, 2017). CESifo Working Paper Series No. 6767, Available at SSRN: https://ssrn.com/abstract=3109311 or http://dx.doi.org/10.2139/ssrn.3109311

Ben J. Heijdra (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 7303 (Phone)
+31 50 363 7337 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yang Jiang

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Jochen O. Mierau

University of Groningen ( email )

P.O. Box 800
9700 AV Groningen
Netherlands

HOME PAGE: http://www.rug.nl/staff/j.o.mierau

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
38
Abstract Views
415
PlumX Metrics