stock market returns and annuitization abstract i investigate the strong negative relation between recent stock returns and the annuitization of retirement savings using a novel data set with over 100 000 actual payout decisions after controlling for several standard explanations e g wealth effects i present evidence supporting naive beliefs and extrapolation from past returns the effect of recent returns on annuitization dramatically increases with age confirming that the elderly rely most heavily on recent information my results provide insights into how beliefs are formed in old age and have implications for the design of public policies seeking to promote annuitization

how deep is the annuity market participation puzzle using microeconomic data for the united kingdom we analyze the empirical determinants of voluntary annuity market demand we find that annuity market participation increases with financial wealth life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses we then show that these empirically motivated determinants of annuity market participation have the same quantitatively important effects in a life cycle model of annuity and life insurance demand saving and portfolio choice moreover reasonable preference parameters predict annuity demand levels comparable to the data for stockholders a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand

pension wealth and household saving evidence from pension reforms in the united kingdom using three major u k pension reforms as natural experiments we investigate the relationship between pension saving and discretionary private savings unlike most differences in differences approaches which rely on average differences between control and treatment group we use economic theory to model the response of each individual household the empirical analysis based on the family expenditure survey uses both time series and cross sectional variation to identify the behavioral response the earnings related tier of the pension scheme is found to have a negative impact on private savings with relatively high substitution elasticities the impact of the flat rate tier is not significantly different from zero jel h55 h91 the relationship between pension wealth and household savings is crucial for important policy issues such as establishing the effects of changes in pension legislation on saving behavior from a theoretical point of view the lifecycle framework suggests that the provision of public benefits after retirement constitutes a negative incentive to accumulate wealth during one s working life quantifying the resulting relationship between pension wealth and saving even within a simple theoretical frame

selection effects in the united kingdom individual annuities market this paper explores adverse selection in the voluntary and compulsory individual annuity markets in the united kingdom two empirical regularities support standard models of adverse selection first annuitants are longer lived than non annuitants these mortality differences are more pronounced in the voluntary than in the compulsory annuity market we estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market second the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based in part on private information about their mortality prospects the aging of populations in many developed nations has generated substantial interest in the way households finance consumption in their retirement years annuities insurance products that provide a payment stream for as long as the insured individual is alive offer one way to spread an accumulated stock of resources over a retirement period of uncertain length theoretical research beginning with yaari 1965 suggests substantial utility gains from annuitisation in the presence of stochastic length of life public policy discussions have also generated substantial current interest in the operation of annuity markets the decline in long term interest rates in the united kingdom since the early 1990s has coincided with a decline in annuity payouts relative to annuity premia this has sparked a debate

bequest motives and determinants of micro life insurance in sri lanka this paper emphasizes bequest motives by evaluating participation patterns in micro life insurance against insurance demand and supply side factors based on household survey data from sri lanka it presents evidence on the determinants of micro life insurance participation of low income households using probit and tobit models the results provide evidence that micro life insurance is positively correlated with measures of bequest motives such as the number of children or dependents besides better off households are less excluded from micro life insurance markets than their poorer counterparts the study finds a convincing need for the microinsurance sector to be more responsive to the needs of the poor with a key role in providing financial education to understand the need for microinsurance

cognitive constraints on valuing annuities this paper documents consumers difficulty valuing life annuities using a purpose built experiment in the american life panel we show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them we also find that buy values are negatively correlated with sell values and that the sell buy valuation spread is negatively correlated with cognition this spread is larger for those with less education weaker numerical abilities and lower levels of financial literacy our evidence contributes to the emerging literature on heterogeneity in financial decision making abilities particularly regarding retirement payouts jel d14 d91 g11 h55

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

the effect of rental rates on the extension of conservation reserve program contracts given that the majority of conservation reserve program crp contracts on approximately 36 million acres of enrolled land expire concurrently re enrollment decisions by farmers and the federal government have high budgetary implications using a survey of over 8 000 crp contract holders we apply an ordered response discrete choice model to explicitly model the range in rental rates over which the representative farmer may be ambivalent to renewing the crp contract given the empirical results from the ordered response model we estimate acreage re enrollment as a function of the rental rate and compare them to results of a binomial choice model

wealth inequality and intergenerational links previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings and that makes the richest households hold onto large amounts of wealth even during very old age i construct a quantitative general equilibrium overlapping generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability i show that voluntary bequests can explain the emergence of large estates while accidental bequests alone cannot and that adding earnings persistence within families increases wealth concentration even more i also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data

life cycle portfolio choice with additive habit formation preferences and uninsurable labor income risk this article explores the implications of additive and endogenous habit formation preferences in the context of a life cycle model of an investor who has stochastic uninsurable labor income to solve the model i analytically derive the habit wealth feasibility constraints and show that they depend on the worst possible path of future labor income and on the habit strength but not on the probability of the worst income when there is only a slim chance of a severe income shock the model implies much more conservative portfolios the model also predicts that for some low to moderately wealthy households the portfolio share allocated to stocks increases with wealth because of this feature the model can generate more conservative portfolios for younger than for middle aged households the effects of habits on portfolio choice are robust to income smoothing through borrowing or flexible labor supply one controversial finding is that for high values of the habit strength parameter usually required for the resolution of asset pricing puzzles in general equilibrium the life cycle model predicts counterfactually high wealth accumulation jel g11 g12 copyright 2007 oxford university press

enduring impacts of land retirement policies evidence from the conservation reserve program we examine the persistence of cropland retirements induced by the conservation reserve program crp the largest u s conservation program we analyze micro data on observed land use choices following crp contract expiration over 1995 1997 and predict that 42 of crp acres would not have been returned to crops within a year if the program had expired in 1997 these results indicate that temporary cropland retirement payments under crp generate land use changes that often extend beyond contract periods the analysis suggests that targeted signing bonuses for first time enrollees would increase the longer term impacts of crp and perhaps other incentive based land use programs

the effects of marital status and children on savings and portfolio choice this paper investigates the impact of demographic shocks on optimal decisions about saving life insurance and most centrally asset allocation we analyze these choices within the framework of a life cycle model that features exogenous changes in family composition heterogeneity in lifetime income and uninsurable fluctuations in earnings and medical costs our analysis indicates that marital status transitions and children can have important effects on optimal household decisions widowhood induces sharp reductions in the portfolio shares in stock and the impact is largest for women and individuals with children divorce causes men and women to reallocate their portfolios in different directions men choose much riskier allocations while women opt for safer ones children play a fundamental role in the optimal portfolio decisions men with children for example increase their shares in response to divorce by less than half as much as men without children comparing our simulation results with panel data evidence on stockholding from the psid and the hrs we conclude that changes in marital status and children matter empirically as well but not always in the ways that the model predicts

health and mortality delta assessing the welfare cost of household insurance choice we develop a pair of risk measures health and mortality delta for the universe of life and health insurance products a life cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products we estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance annuities including private pensions and long term care insurance in the health and retirement study for the median household aged 51 to 57 the lifetime welfare cost of market incompleteness and suboptimal choice is 3 2 of total wealth

an experimental test of the under annuitization puzzle with smooth ambiguity and charitable giving abstract in a life cycle model with a bequest motive we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities we implement a theory driven laboratory experiment first a subject s ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational then in a two period annuity bequest decision problem the subject s bequest in the second period is presented as a donation to a previously chosen charity contingent to the subject being active after the first period in line with the theoretical predictions we find that ambiguity averse resp loving subjects invest less resp more in annuities than ambiguity neutral ones furthermore subjects contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm glow altruism

options uncertainty and sunk costs an empirical analysis of land use change abstract in a real option model of land conversion incorporating return uncertainty and sunk costs optimal conversion thresholds are significantly higher than those from expected net present value models not accounting for these factors empirical tests of conversion from agriculture to forest suggest that landowners value the option to convert when making conversion decisions higher uncertainty in returns to all potential uses and lower correlation between shocks to agricultural and forest returns decreases the likelihood of conversion estimates indicate a significant impact on conversion decisions with approximations of option values ranging from 7 to 81 of the expected value of the land asset

how strong are bequest motives evidence based on estimates of the demand for life insurance and annuities this paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated by the desire to leave bequests specifically i find that social security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals these patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms even if insurance markets were perfect evidence on the relationship between insurance purchases and total resources reinforces this conclusion

reverse mortgage loans a quantitative analysis reverse mortgage loans rmls allow older homeowners to borrow against housing wealth without moving despite rapid growth in this market only 1 9 of eligible homeowners had rmls in 2013 in this paper we analyze reverse mortgages in a calibrated life cycle model of retirement the average welfare gain from rmls is 252 per homeowner and 1 770 per rml borrower bequest motives uncertainty about health and expenses and loan costs account for low demand according to the model the great recession s impact differs across age income and wealth distributions with a threefold increase in rml demand for lowest income and oldest households

program enrollment and acreage response to reforestation cost sharing programs five alternative sets of predictions are presented of the total acreage of southern pine that would have been planted after clear cut harvest if existing government forest improvement programs had made different levels of cost sharing available to nonindustrial private forest owners the predictions illustrate the importance of separating and accounting for both the number of tracts enrolled and for the size of enrolled tracts predictions are obtained from a profit maximization model that represents the owner s decision as a simultaneous choice of reforestation practice and size of tract to harvest and reforest

the costs of carbon sequestration a revealed preference approach increased concem by policy makers with the threat of global climate change has brought with it considerable attention to the possibility of encouraging the growth of forests as a means of sequestering carbon dioxide national academy of sciences nas 1992 james p bruce et al 1996 1 the kyoto protocol to the united nations framework convention on climate change 1997 which establishes emission reduction targets for the united states and other industrialized nations states that carbon sequestration can be used by participating nations to achieve their targets moreover even before the kyoto agreement this approach had become an explicit element of both u s and intemational climate policies u s department of energy 1991 united nations general assembly 1992 william j clinton and albert gore 1993 this high level of interest has been due in part to suggestions that sufficient lands are available to use the approach to mitigate a substantial share of annual carbon dioxide c02 emissions greg marland 1988 daniel a lashof and dennis a tirpak 1989 mark c trexler 1991 and claims that growing trees to sequester carbon is a relatively inexpensive means of combating climate change roger a sedjo and allen m solomon 1989 daniel j dudek and alice leblanc 1990 nas 1992 in other words the serious attention given by policy makers to carbon sequestration can partly be explained by implicit assertions about respective marginal cost functions i develop and demonstrate a method by which the costs of carbon sequestration can be estimated on the basis of evidence from landowners behavior when confronted with the opportunity costs of alternative land uses the simplest of previous economic analyses derived single point estimates of average costs associated with particular sequestration levels marland 1988 sedjo and solomon 1989 dudek and leblanc 1990 edwin s rubin et al 1992 omar masera et al 1995 often it has been assumed that land opportunity costs are zero g van kooten et al 1992 j k winjum et al 1992 new york state energy office 1993 robert k dixon et al 1994 another set of studies essentially engineering costing models has constructed marginal cost schedules by using information on revenues and costs of production for altemative uses on representative types or locations of land and then sorting these in ascending order of cost robert j moulton and kenneth r richards 1990 richards et al 1993 simulation models include a model of the lost profits due to removing land from agricultural production peter j parks and ian w hardie 1995 a mathematical programming model of the agricultural sector and the timber market richard m adams et al 1993 a related model incorporating the effects of agricultural price support programs j m callaway and bruce mccarl 1996 and a dynamic simulation model of forestry susan swinehart 1996 lastly an analysis by andrew j plantinga 1995 adopts land use elasticities from an econometric study to estimate sequestration costs we draw on some of the best features of the previous studies including the carbon levelization method of moulton and richards john f kennedy school of government harvard university 79 john f kennedy street cambridge ma 02138 and resources for the future richard newell supplied excellent research assistance and valuable comments on a previous version were provided by lawrence goulder william nordhaus andrew plantinga kenneth richards two anonymous referees participants in seminars at the universities of california at los angeles and santa barbara the university of maryland the university of michigan the university of texas harvard university stanford university yale university resources for the future and the national bureau of economic research the author alone is resdonsible for any errors 1 after fossil fuel combustion deforestation is the second largest source of carbon dioxide emissions estimates of annual global emissions from deforestation range from 0 6 to 2 8 billion tons compared with slightly less than 6 0 billion tons annually from fossil fuel combustion cement manufacturing and natural gas flaring combined r a houghton 1991 t m smith et al 1993

urban and built up land area changes in the united states an empirical investigation of determinants conversion of commodity producing rural lands to urban and other built up uses received considerable attention in the professional literature and in the popular press in the early 1980s u s department of agriculture and u s council on environmental quality 1981 fischel 1982 raup 1980 brown et al 1982 although some have concluded that the forces encouraging the conversion of land will remain and become stronger e g barron and dickinson 1975 few empirical studies at regional or national levels have examined determinants of area changes for urban and built up uses or supported long term area projections of such uses possible determinants include the inter regional distribution of population growth and patterns of land use within regions particularly patterns of human settlement

accounting for non annuitization why don t people buy annuities several explanations have been provided by the previous literature large fraction of preannuitized wealth in retirees portfolios adverse selection bequest motives and medical expense uncertainty this paper uses a quantitative model to assess the importance of these impediments to annuitization and also studies three newer explanations government safety net in terms of means tested transfers illiquidity of housing wealth and restrictions on minimum amount of investment in annuities this paper shows that quantitatively four explanations play a big role in reducing annuity demand preannuitized wealth minimum annuity purchase requirement illiquidity of housing wealth and bequest motives the annuity purchase involves big upfront investment especially if there is a minimum purchase restriction this is binding for many especially if housing is illiquid and part of wealth is preannuitized while bequest motives significantly reduce the overall annuity demand the model with a strong bequest motive cannot match the empirical fact that high income people have the highest demand for annuities

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

what makes annuitization more appealing we conduct and analyze two large surveys of hypothetical annuitization choices we find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an all or nothing decision very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value highlighting the effects of inflation increases demand for cost of living adjustments frames that highlight flexibility control and investment significantly reduce annuitization a majority of respondents prefer to receive an extra bonus payment during one month of the year that is funded by slightly lower payments in the remaining months concerns about later life income spending flexibility and counterparty risk are the most important self reported motives that influence the annuitization decision

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

how family status and social security claiming options shape optimal life cycle portfolios we show how optimal household decisions regarding work retirement saving portfolio allocations and life insurance are shaped by the complex financial options embedded in u s social security rules and uncertain family transitions our life cycle model predicts sharp consumption drops on retirement an age 62 peak in claiming rates and earlier claiming by wives versus husbands and single women moreover life insurance is mainly purchased on men s lives our model which takes social security rules seriously generates wealth and retirement outcomes that are more consistent with the data in contrast to earlier and less realistic models

putting the pension back in 401 k retirement plans optimal versus default deferred longevity income annuities abstract the us treasury recently permitted deferred longevity income annuities to be included in pension plan menus as a default payout solution yet little research has investigated whether more people should convert some of the 18 trillion they hold in employer based defined contribution plans into lifelong income streams we investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations our welfare analysis shows that defaulting a modest portion of retirees 401 k assets over a threshold is an attractive way to enhance retirement security enhancing welfare by up to 20 of retiree plan accruals

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

institutional and individual investors saving for old age this paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the special issue this introductory article and the papers in the special issue contribute to the debate on how to support individuals in their savings commitments and investment decision making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry there are three main conclusions i individual investors are not ready for the role that has been assigned to them in the pension industry ii institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients and iii more effective regulation may be needed

health cost risk a potential solution to the annuity puzzle we find that health cost risk lowers optimal annuity demand at retirement if medical expenses can be sizeable early in retirement full annuitisation at retirement is no longer optimal because agents do not have enough time to build a liquid wealth buffer furthermore large deviations from optimal annuitisation levels lead to small utility differences our results suggest that health cost risk can explain a large proportion of empirically observed annuity choices finally allowing additional annuitisation after retirement results in welfare gains of at most 2 5 when facing health cost risk and negligible gains without this risk

pension incentives and the pattern of early retirement this mix of state and private pension provision in the united kingdom provides a rare degree of variation in pension incentives for retirement using a sample of individuals from the uk retirement survey the paper models the probability of retirement in terms of the incentives underlying the individual s pension plan as well as other socio economic factors it follows an option value approach and allows a separate role for pension wealth for spouse s economic characteristics and for demographic characteristics it distinguishes between serps and private schemes and models eligibility to disability the results point to significant retirement incentive effects from the pension system

how much does annuity demand react to a large price change in this paper we present new evidence for the effect of changes in annuity prices on the decision to annuitize we exploit an unprecedented change in policy in several swiss occupational pension plans there is an implied 8 percent reduction in the rate at which retirement capital is translated into an annuity and this represents a net present value loss of chf 18 500 around us 20 000 to estimate the impact of this change we use data from companies that changed their prices and from one large company that did not we find that the price change reduces the propensity to annuitize among affected individuals by 16 8 percentage points

portfolio choice in retirement health risk and the demand for annuities housing and risky assets in a life cycle model a retiree faces stochastic health depreciation and chooses consumption health expenditure and the allocation of wealth between bonds stocks and housing the model explains key facts about asset allocation and health expenditure across health status and age the portfolio share in stocks is low overall and is positively related to health especially for younger retirees the portfolio share in housing is negatively related to health for younger retirees and falls significantly in age finally out of pocket health expenditure as a share of income is negatively related to health and rises in age

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

annuitization and asset allocation this paper examines the optimal annuitization investment and consumption strategies of a utility maximizing retiree facing a stochastic time of death under a variety of institutional restrictions we focus on the impact of aging on the optimal purchase of life annuities which form the basis of most defined benefit pension plans due to adverse selection acquiring a lifetime payout annuity is an irreversible transaction that creates an incentive to delay under the institutional all or nothing arrangement where annuitization must take place at one distinct point in time i e retirement we derive the optimal age at which to annuitize and develop a metric to capture the loss from annuitizing prematurely in contrast under an open market structure where individuals can annuitize any fraction of their wealth at anytime we locate a general optimal annuity purchasing policy in this case we find that an individual will initially annuitize a lump sum and then buy annuities to keep wealth to one side of a separating ray in wealth annuity space we believe our paper is the first to integrate life annuity products into the portfolio choice literature while taking into account realistic institutional restrictions which are unique to the market for mortality contingent claims

longevity risk retirement savings and financial innovation abstract over the last couple of decades unprecedented increases in life expectancy have raised important concerns for retirement savings we solve a life cycle model with longevity risk which can be hedged through endogenous saving and retirement decisions we investigate the benefits of financial assets designed to hedge the shocks to survival probabilities when longevity risk is calibrated to match forward looking projections those benefits are substantial this lends support to the idea that such hedging should be pursued by defined benefit pension plans on behalf of their beneficiaries finally we draw implications for optimal security design

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

restoring the promise of american labor law the product of an october 1993 conference on labor law reform jointly sponsored by the school of industrial and labor relations at cornell u and the department of economic research at the afl cio this volume both argues the need for fundamental reform of the legal and institutional underpinnings o

the impact of investment behaviour for individual welfare the industrialized world has experienced a demographic shift that is straining public pension systems employer sponsored pension plans change from defined benefit to defined contribution more emphasis is put on individually managed retirement funds one concern with this movement is the potential negative effect on individual welfare if households investment behaviour is suboptimal using micro level us data we compare the optimal utility computed using a lifecycle model with the actual utility as reflected in empirical asset allocation choices average estimated welfare costs are below 3 of households endowment assets and human capital yet specific population groups experience higher welfare costs

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item

unintended impacts of public investments on private decisions the depletion of forested wetlands by affecting relative economic returns infrastructure investments can induce major changes in private land use the authors find that 30 percent of forested wetland depletion in the mississippi valley has resulted from private decisions induced by federal flood control projects despite explicit federal policy to preserve wetlands the model aggregates individual land use decisions using a parametric distribution of unobserved land quality dynamic simulations are used to quantify the impacts on wetlands of federal projects and other factors copyright 1990 by american economic association