Probabilistic Aging
CESifo Working Paper Series No. 1680
University of St. Gallen Economics Discussion Paper No. 8
44 Pages Posted: 27 Apr 2005
Date Written: March 2006
Abstract
The paper develops an overlapping generations model with probabilistic aging of households. We define age as a set of personal attributes such as earnings potential, health and tastes that are characteristic of a person's position in the life-cycle. In assuming a limited number of different states of age, we separate the concepts of age and time since birth. Agents may retain their age characteristics for several periods before they move with a given probability to another state of age. Different generations that share the same age characteristics are aggregated analytically to a low number of age groups. The probabilistic aging model thus allows for a very parsimonious yet rather close approximation of demographic structure and life-cycle differences in earnings, wealth and consumption. Existing classes of overlapping generations models follow as special cases.
Keywords: overlapping generations, aging, demographics, life-cycle earnings
JEL Classification: D58, D91, H55, J21
Suggested Citation: Suggested Citation
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