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 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

Information networks in Africa: a collaborative (FAO/SAIAB) project investigating mechanisms of document exchange and the preservation of grey literature.

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The Kelvin-wave cascade in the vortex filament model

The energy transfer mechanism in zero temperature superfluid turbulence of helium-4 is still a widely debated topic. Currently, the main hypothesis is that weakly nonlinear interacting Kelvin waves transfer energy to sufficiently small scales such that energy is dissipated as heat via phonon excitations. Theoretically, there are at least two proposed theories for Kelvin-wave interactions. We perform the most comprehensive numerical simulation of weakly nonlinear interacting Kelvin-waves to date and show, using a specially designed numerical algorithm incorporating the full Biot-Savart equation, that our results are consistent with nonlocal six-wave Kelvin wave interactions as proposed by L'vov and Nazarenko.Comment: 6 pages, 6 figure

A Renter or Homeowner Nation?

Between the 1940s and the 1960s, the U.S. homeownership rate increased by nearly 20 percentage points, from mid-40 to mid-60 percent. The self-amortizing 30-year, fixed-rate mortgage, introduced by the Federal Housing Administration/Veterans Administration (VA—now the U.S. Department of Veterans Affairs) transformed the United States from a nation of renters to a nation of homeowners (Acolin and Wachter, 2015; Fetter, 2013)

Statistical physics of the Schelling model of segregation

We investigate the static and dynamic properties of a celebrated model of social segregation, providing a complete explanation of the mechanisms leading to segregation both in one- and two-dimensional systems. Standard statistical physics methods shed light on the rich phenomenology of this simple model, exhibiting static phase transitions typical of kinetic constrained models, nontrivial coarsening like in driven-particle systems and percolation-related phenomena.Comment: 4 pages, 3 figure