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

A more stable EMU does not require a central fiscal capacity

A central fiscal capacity is a recurring topic in discussions on reform of the Economic and Monetary Union, but no consensus on the usefulness and necessity of a such a capacity has been reached. This column, part of the Vox debate on euro area reform, argues that the potential stability benefits of a central fiscal capacity can be achieved through stronger financial market risk sharing and more effective use of fiscal stabilisers, without any additional fiscal risk sharing

The problem with environmental security: challenging the either/or approach of national versus human security in the context of the Mekong River Basin

One of the most important ideas to emerge from security studies in the past forty years is the field of research known as ‘environmental security studies’ (ESS). It has not, however, had the impact on security studies in general that it might have expected to – given the growing concerns regarding the scale and pace of environmental changes in the 20th and 21st centuries. This thesis therefore firstly seeks to understand the nature of ESS, asking whether ESS has a central theoretical core that enables it to analyse the links between the environment and security. The research shows that the ESS literature does not have a central tenet, nor a united epistemological or methodological approach. The second area of research therefore asks if there is a common theme that can be discerned within the literature. Research indicates that there is a way of understanding ESS in a more coherent fashion in that the majority of ESS scholars endeavour to comprehend the systemic security impact of environmental processes. The problem is that there is no analytical bridge between the environment, the state and the individual. This thesis therefore forwards a unique approach that argues that rather than the current either state-centric or a human security approach to ESS, it must be understood as a combination of both. This approach is termed “Systemic Environmental Security” (SES). SES is an analytical framework that takes into account the way that environmental processes give rise to both state security and human security concerns simultaneously. The thesis finally explores the unique insights provided by SES. This is achieved through a relevant case study of the Mekong River Basin. It is hoped that these unique insights provided by Systemic Environmental Security can be applied in a range of contexts, providing clearer conceptualisations of the complex relationship between security and the environment

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 an increase in the length of biological life (biological longevity boost), an increase in both biological and productive life span (comprehensive longevity boost), and a decrease in the net birth rate (baby bust). Robustness checks are performed by allowing for capital market imperfections and indivisibility of labour supply

Determinants of alcohol use among young males in two Indian states: A population-based study.

OBJECTIVES: There is insufficient evidence about the determinants of alcohol use amongst young people in India and other low-and middle-income countries, despite alcohol's high contribution to disease burden and increasing consumption in this population. We aimed to identify and estimate the determinants of alcohol use in a representative sample of 2716 young men from Bihar and Uttar Pradesh who participated in the 'Understanding the Lives of Adolescents and Young Adults' (UDAYA) study. METHODS: First, we developed an exploratory conceptual framework of potential alcohol use determinants in the study settings based on available literature. We then estimated the effects of 35 potential alcohol use determinants identified in the conceptual framework (including 14 latent factors identified through exploratory factor analysis) on any alcohol use in the past 3 years and regular alcohol use amongst past three-year drinkers, using mixed-effects logistic models. The determinants explored were operationalised using longitudinal data from the UDAYA study. RESULTS: Our adjusted models identified 18 determinants for past 3-year alcohol use and 12 determinants for regular use. Distal determinants (e.g., socioeconomic status), intermediate determinants (e.g., parental alcohol use, media use), and proximal determinants (e.g., emotional regulation, early tobacco use) were identified. Geographical variations in both outcomes indicate potential differences in unmeasured community-level determinants (e.g., alcohol availability and acceptability). CONCLUSIONS: Our findings extend the generalizability of several known determinants across settings, yet highlight the importance of addressing alcohol use in young people as a complex and context-dependent issue. Many identified determinants (e.g., education, media use, poor parental support, early tobacco use) are amenable to intervention through multi-sectoral prevention programs/policies. Such determinants should be the focus of ongoing policy/intervention development efforts in the region, and our revised conceptual framework may inform further research in India or similar South Asian settings

Adverse Selection in Private Annuity Markets and the Role of Mandatory Social Annuitization

We study the effects on the macroeconomic equilibrium, the wealth distribution, and welfare of adverse selection in private annuity markets in a closed economy inhabited by overlapping generations of heterogeneous agents who are distinguished by their health status. If an agent's health type is private information there will be a pooling equilibrium in the private annuity market. We also study the implications for the macro-economy and welfare of a social security system with mandatory contributions that are constant across health types. These social annuities are immune to adverse selection and therefore offer a higher rate of return than private annuities do. However, they have a negative effect on the steady-state capital intensity and welfare. The positive effect of a fair pooled rate of return on a fixed part of savings and a higher return on capital in equilibrium is outweighed by the negative consequences of increased adverse selection in the private annuity market and a lower wage rate