Welfare effects of life annuities for an altruistic consumer in Korea
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In this paper I develop a simple overlapping generations model of a household who annuitizes income in an actuarially fair market. In this setup, I particularly model the strong motivation of Korean consumers in leaving bequests for their children or descendants. I have showed the optimal policies of lifetime consumption, and saving over the life cycle. The numerical solutions are contingent on the assumption of a household’s bequest motive parameter. I calculate that the indirect utility with the optimal policies without a public pension system differs from the welfare with a pay-as-you-go social security. Given the plausible values of parameters that can explain aggregate economic environment, and consumers’ preference, I show that the welfare increases when a consumer purchase individual life annuity with receiving public pension than without receiving the public pension. Given the negative population growth rates and high survival probabilities in Korea, the results show that a pay-as-you-go social security system increases the welfare. The gain is sensitive to how strongly a household want to leave bequests to the next generation. The welfare differences based on the numerical solutions can explain the easily observed pattern that there are only a few number of consumers in Korean life annuity market.
Abstract
In this paper I develop a simple overlapping generations model of a household who annuitizes income in an actuarially fair market. In this setup, I particularly model the strong motivation of Korean consumers in leaving bequests for their children or descendants. I have showed the optimal policies of lifetime consumption, and saving over the life cycle. The numerical solutions are contingent on the assumption of a household’s bequest motive parameter. I calculate that the indirect utility with the optimal policies without a public pension system differs from the welfare with a pay-as-you-go social security. Given the plausible values of parameters that can explain aggregate economic environment, and consumers’ preference, I show that the welfare increases when a consumer purchase individual life annuity with receiving public pension than without receiving the public pension. Given the negative population growth rates and high survival probabilities in Korea, the results show that a pay-as-you-go social security system increases the welfare. The gain is sensitive to how strongly a household want to leave bequests to the next generation. The welfare differences based on the numerical solutions can explain the easily observed pattern that there are only a few number of consumers in Korean life annuity market.
참고문헌 (23)
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