The effects of annuities, bequests, and aging in an overlapping generations model of endogenous growth.

In this paper, we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth. We find the complete annuitization of agents' wealth is not, in general, dynamically optimal; that the degree of annuitization that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay-as-you-go social security tax rate. We find that the government has an incentive to restrict the availability of actuarially fair annuities contracts, and that it can often move the economy from a pay-as-you-go to a fully-funded social security system via voluntary contributions to a government sponsored, actuarially fair pension today accompanied by reductions in social security taxes tomorrow.Wealth ; Old age

The effects of aging and myopia on the pay-as-you-go social security systems of the G7

The Social Security systems of the G7 countries were established in an era when populations were young and the number of contributors far outweighed the number of beneficiaries. Now, for each beneficiary there are fewer contributors, and this downward trend is projected to accelerate. To evaluate the prospects for these economies we develop an overlapping generations model in which growth is endogenously fueled by individuals' investments in physical and human capital and by the government's investment in human capital via public education expenditures. We analyze individuals' behavior when their expectations over their length of life are rational and adaptive (myopic). We examine for each of the economies and for each of the expectation assumptions whether policies exist that can offset the effects of aging, should they be adverse. Further, we examine how policies aimed at a specific target group affect the welfare of the economy as a whole.Social security ; Group of Seven countries

Aging, myopia and the pay-as-you-go public pension systems of the G7: a bright future?

The public pension systems of the G7 countries were established in an era when the number of contributors far outweighed the number of beneficiaries. Now, for each beneficiary there are fewer contributors, and this trend is projected to accelerate. To evaluate the prospects for these economies we develop an overlapping generations model where growth is endogenously fueled by investments in physical and human capital. We analyze individuals' behavior when their expectations over their length of life are rational or myopic and examine whether policies exist that can offset the effects of aging, should they be adverse. We find that while perfectly anticipated aging is welfare improving and does not threaten the solvency of public pension systems, myopia worsens welfare, puts pension systems at risk, and cannot be easily remedied by public policy.Social security

Dependent children and aged parents: funding education and social security in an aging economy

In the last few decades in the United States birth rates have declined and longevity has risen while productivity growth has slowed. Given such changes, the increasing burden of funding programs for the elderly is likely to shift resources away from the young and toward the elderly. This paper uses an overlapping generations framework to examine the effects of tax policies on an aging economy. We find that if the quality of the education system is sufficiently high then shifting tax resources away from social security and toward education is both growth and welfare enhancing.Education ; Social security

Reforming Social Security: a welfare analysis

Social security ; Welfare

A simple model of international capital flows, exchange rate risk, and portfolio choice

This paper examines international capital flows in the context of a simple Diamond-Dybvig model in which there are neither moral hazard nor adverse selection problems, thus isolating exchange rate risk as the propagator of capital flows. The model shows that adverse changes in exchange rate expectations can result in "hot money" flows even when a bank's balance sheet is perfectly transparent and its assets have a positive net present value in local currency terms. The model also indicates that foreign deposit guarantees even in the absence of a change in the bank's portfolio can increase the chance of bank runs.Capital movements ; Foreign exchange

Becoming: Identity and Spirituality

An individual’s identity answers the questions of who, what, where, and why the individual is. An overall identity is made up of multiple constituent identities. These identities may not be fixed over the life course, but may change as a result of conscious choices as well as serendipity or calamity – life transforming events which cannot be anticipated, which remove what had been the certainties and norms of life, and which can leave the individual disconnected from what had been her past and from her hoped for future. In this paper we develop a two-period behavioral model of an individual whose personal identity is an amalgam of N identities, one or more of which may be spiritual in nature. Some identities are actualized at a point in time and some remain latent. We model how individuals allocate resources among current and hoped for future identities, and how these resource allocation decisions and identity actualizations are affected by the interaction of choices and unanticipated external events. We argue why a spiritual identity may be actualized, how it interacts with other identities, and why, in giving context to an individual’s life, it enables her to define and to strive toward her overall identity – to become

The Effects of Annuities, Bequests, and Aging in an Overlapping Generatiions Model of Endogenous Growth

We examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth. The complete annuitisation of agents' wealth is not, in general, dynamically optimal; the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay-as-you-go social security tax rate. The government has an incentive to restrict the availability of actuarially fair annuities contracts, and can often move the economy from a pay-as-you-go to a fully-funded social security system via voluntary contributions to a government sponsored, actuarially fair pension today accompanied by reductions in social security taxes tomorrow

Aging, Myopia, and the Pay-As-You-Go Public Pension Systems of the G7: A Bright Future?

Public pension systems of the G7 countries were established in an era when contributors far outnumbered beneficiaries. Now, for each beneficiary there are fewer contributors, and this trend is projected to accelerate. To evaluate the prospects for these economies we develop an endogenous growth overlapping generations model. We analyze individuals’ behavior when their expectations regarding longevity are rational or myopic, and examine whether policies exist that can offset any adverse effects of aging. We find that while perfectly anticipated aging is welfare improving, myopia worsens welfare, puts pension systems at risk, and cannot be easily remedied by public policy. “Population aging is the single most consistent pressure on federal income security spending, as public pension spending continues its relentless upward climb.

Risk-based Deposit Insurance: An Incentive Compatible Plan

DEPOSIT INSURANCE PROVIDED by the Federal Deposit Insurance Corporation (FDIC) violates a basic principle of insurance: premiums are not adjusted for bank risk. Thus, banks have the incentive to take on more risk, increasing the insurer's liability but not the banks' costs (see Keeton 1984). This incentive is heightened further by the FDIC's timidity in closing failed banks. If uninsured depositors and other creditors were able and willing to evaluate bank risk and demand risk-adjusted returns on investments, the incentive for risk-taking would be weakened, since, in such a world, deposit insurance could be fairly priced (see Thomson 1987). When asymmetric information concerning both bank risktaking and insurer behavior characterizes the banking market [as Crane (1976); Avery, Belton, and Goldberg (1988); Keeton and Morris (1987); and Brewer and Lee (1986) all suggest to be the case], other remedies must be sought.