Reference : Life-cycle modelling of bequests and its implications for annuity valuation
Scientific journals : Article
Business & economic sciences : Economic systems & public economics
Life-cycle modelling of bequests and its implications for annuity valuation
Jousten, Alain mailto [Université de Liège - ULiège > HEC-Ecole de gestion : UER > Théorie monétaire et macroéconomie >]
Journal of Public Economics
Elsevier Science
Yes (verified by ORBi)
[en] bequests ; annuities ; consumption function
[en] In this paper we introduce a linear bequest motive into a standard life-cycle model, both
allowing for credit and annuity market imperfections. First, we characterize the consumption
and wealth processes.We find that consumption is non-increasing in the linear bequest
parameter for the simplest certainty case, but that the same is not true for life-span
uncertainty. Second, we study the issue of annuity valuation. For a sufficiently strong
bequest motive, the true value of an annuity is equal to the actuarial value. This invalidates
a previous claim that, for imperfect annuity markets, it is close to the simple financial value.
Researchers ; Professionals

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