Consumption over the life cycle
Subtitle: the role of annuities
By: Gary D. Hansen, Selahattin İmrohoroǧlu.
Contributors: İmrohoroǧlu, Selahattin.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 12341.; Working paper series (National Bureau of Economic Research) -- working paper no. 12341.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 32
Subjects: Consumption (Economics) -- Mathematical models
Description: "We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete.  Empirical studies find that consumption tends to rise early in life, peak around age 45-55, and to decline after that.  Our calibrated model exhibits life cycle consumption that is consistent with this pattern.  This follows from the fact that, due to a lack of annuity markets, households discount the future more heavily as they age and their probability of survival falls.  Once an unfunded social security system is introduced, the profile is still hump shaped, but the decline in consumption does not begin until after retirement in our base case.  Adding a bequest motive causes this decline to begin at a younger age"--National Bureau of Economic Research web site.
Notes: "June 2006."

Includes bibliographical references (p. 31-32).

Also available in PDF from the NBER world wide web site (www.nber.org).