Economic Growth and Longevity Risk with Adverse Selection

We study a closed economy featuring heterogeneous agents and exhibiting endogenous economic growth due to interfirm external effects. Individual agents differ in terms of their mortality profile. At birth, nature assigns a health status to each agent. Health type is private information and annuity firms can only observe an agent’s age. In the presence of longevity risk, agents want to annuitize their wealth conform the classic result by Yaari (1965). In the first-best case with perfect annuities, the market would feature a separating equilibrium (SE) in which each health type obtains an actuarially fair perfect insurance. In the SE all agents are savers throughout their lives. The informational asymmetry precludes the attainment of the first-best equilibrium, however, as healthy individuals have a strong incentive to misrepresent their type by claiming to be unhealthy. Using the equilibrium concept of Pauly (1974) and Abel (1986), we prove the existence of a second-best pooling equilibrium (PE) in which individuals of all types annuitize at a common pooling rate. As the unhealthy get close to their maximum attainable age, the pooling rate prompts such individuals to become net borrowers. But borrowing would reveal their health status, so the best the unhealthy can do is to impose a borrowing constraint on themselves during their autumn years. Using a plausibly calibrated version of the model we find that the growth- and welfare effects of PE versus SE are rather small, whilst those of PE versus no annuities at all (NAE) are rather large. An imperfect insurance is better than no insurance at all, both at the microeconomic and at the macroeconomic level.annuity markets, adverse selection, endogenous growth, overlapping generations, demography

The Tragedy of Annuitization

We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for longrun welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.Longevity risk, Risk sharing, Overlapping generations, Intergenerational transfers, Annuity markets

Enhancing the Australian National Health Survey Data for Use in a Microsimulation Model of Pharmaceutical Drug Usage and Cost

While static microsimulation models of the tax-transfer system are now available throughout the developed world, health microsimulation models are much rarer. This is, at least in part, due to the difficulties in creating adequate base micro-datasets upon which the microsimulation models can be constructed. In sharp contrast to tax-transfer modelling, no readily available microdata set typically contains all the health status, health service usage and socio-demographic information required for a sophisticated health microsimulation model. This paper describes three new techniques developed to overcome survey data limitations when constructing \'MediSim\', a microsimulation model of the Australian Pharmaceutical Benefits Scheme. Comparable statistical matching and data imputation techniques may be of relevance to other modellers, as they attempt to overcome similar data deficiencies. The 2001 national health survey (NHS) was the main data source for MediSim. However, the NHS has a number of limitations for use in a microsimulation model. To compensate for this, we statistically matched the NHS with another national survey to create synthetic families and get a complete record for every individual within each family. Further, we used complementary datasets to impute short term health conditions and prescribed drug usage for both short- and long-term health conditions. The application of statistical matching methods and use of complementary data sets significantly improved the usefulness of the NHS as a base dataset for MediSim.Base Data, Drug Usage, Microsimulation, Pharmaceutical Benefits, Scripts, Statistical Matching

The Tragedy of Annuitization

We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.longevity risk, risk sharing, overlapping generations, intergenerational transfers, annuity markets

Human capital accumulation and the macroeconomy in an ageing society

How do population ageing shocks affect the long-run macroeconomic performance of an economy? To answer this question we build a general equilibrium overlapping generations model of a closed economy featuring endogenous factor prices. Finitely-lived individuals are endowed with perfect foresight and make optimal choices over the life cycle. In addition to selecting age profiles for consumption and the hours of time supplied to the labour market, they also choose their schooling level and retirement age. Human capital is accumulated as a result of work experience, the extent of which is determined by the intensity of labour supply. As the agent gets older, biological deterioration sets in and human capital depreciates at an increasing rate. This ultimately prompts the agent to withdraw from the labour market. The microeconomic and macroeconomic effects of three ageing shocks are studied, namely a biological longevity boost, a comprehensive longevity boost, and a baby bust. Robustness checks are performed by allowing for capital market imperfections and indivisibility of labour supply

Longevity Shocks with Age-Dependent Productivity Growth

The aim of this paper is to study the long-run effects of a longevity increase on individual decisions about education and retirement, taking macroeconomic repercussions through endogenous factor prices and the pension system into account. We build a model of a closed economy inhabited by overlapping generations of finitely-lived individuals whose labour productivity depends on their age through the build-up of labour market experience and the depreciation of human capital. We make two contributions to the literature on the macroeconomics of population ageing. First we show that it is important to recognize that a longer life need not imply a more productive life and that this matters for the affordability of an unfunded pension system. Second, we find that factor prices could move in a direction opposite to the one accepted as conventional wisdom following an increase in longevity, depending on the corresponding change in the age-productivity profile

Learning Assistant Supported Student Outcomes (LASSO) study initial findings

This study investigates how faculty, student, and course features are linked to student outcomes in Learning Assistant (LA) supported courses. Over 4,500 students and 17 instructors from 13 LA Alliance member institutions participated in the study. Each participating student completed an online concept inventory at the start (pre) and end (post) of their term. The physics concept inventories included Force and Motion Concept Evaluation (FMCE) and the Brief Electricity and Magnetism Assessment (BEMA). Concepts inventories from the fields of biology and chemistry were also included. Our analyses utilize hierarchical linear models that nest student level data (e.g. pre/post scores and gender) within course level data (e.g. discipline and course enrollment) to build models that examine student outcomes across institutions and disciplines. We report findings on the connections between students' outcomes and their gender, race, and time spent working with LAs as well as instructors' experiences with LAs.Comment: 4 pages (2 tables

Life in Shackles? The Quantitative Implications of Reforming the Educational Loan System

In this paper we conduct a quantitative analysis of a number of stylized educational loan systems. We develop a stochastic general equilibrium model of a closed economy with a competitive firm sector and a government that levies taxes and administers educational loans. Individuals are heterogeneous in their talent for education and ability to learn on the job and face uninsurable idiosyncratic labour productivity risk during their working career. We calibrate the model to the US mortgage loan system and subsequently consider two possible reforms. The first is a Graduate Labour Tax (GLT) system whereby grants to students are financed by means of a tax on the labour income of educated individuals. We find that in the long run the proportion of uneducated workers stays roughly constant but the average educational attainment of students increases. As there exists a considerable amount of transitional dynamics in the model the welfare effects of the reform differ by generation. Cohorts alive at the time of the shock are worse off while ex-ante welfare of future cohorts increases. The gains to the latter are large enough to - at least in principle - compensate the losers from the policy reform and generate an overall welfare gain. The second possible reform we study is a Comprehensive Labour Tax (CLT). It is very similar to the GLT except for the fact that the educational tax is levied on all workers, including those who are uneducated. In contrast to the GLT reform the proportion of uneducated workers drops substantially. Generations that become economically active soon after the policy reform are worse off and the aggregate ex-ante welfare effect is negative