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|Title:||Consumption and work hours in life cycle models with uncertain lifetimes: an individual analysis and an equillibrium analysis with overlapping generations|
|Abstract:||<p>This thesis consists of two parts. In the first part, life cycle patterns of consumption, work hours, savings and assets of an individual under uncertain lifetimes with actuarially fair life insurance and annuities are studied and the effects on consumption and work hours of changes in survival probabilities, the age specific wage rates and the rate at interest are analyzed.</p> <p>A substitutability relation between consumption and leisure and the availability of actuarially fair annuities can explain the lack of decumulation even after retirement.</p> <p>The marginal saving rate out of anticipated labour income is positive. Under certain conditions, the marginal consumption rate could also be positive. Thus the Keynesian absolute Income hypothesis may be fully supported in the life cycle context.</p> <p>A general increase in survival rates creates only a wealth effect by changing the actuarially fair rates of interest. The resulting intertemporal substitution effect is offset by a change in discount factors applied to the utility function due to life uncertainty. On the other hand, an increase in survival probabilities for one individual only, creates an interrtemporal substitution effect.</p> <p>An evolutionary increase in wage rates creates an intertemporal allocation effect by changing the relative price of expenditure (on consumption and leisure) at different ages and an intratemporal substitution effect by increasing the price of leisure relative to consumption. On the other hand, a parametric increase in wage rates creates a wealth effect, an intertemporal reallocation effect and an intratemporal substitution effect. The compensated effect of a parametric wage increase, consisting of the intratemporal substitution effect and the intertemporal reallocation effect, on work hours (consumption) is smaller (greater) than the effects of an equal evolutionary wage Increase.</p> <p>In the second part, a dynamic general equilibrium model based on the Samuelson-Diamond overlapping generations framework, is developed. The model is based on the standard continuous time life cycle model under life uncertainty and incorporates all the demographic aspects of overlappiog generations.</p> <p>The implications of morality changes for aggregate economic behaviour are discussed. A mortality change carries a reallocation effect by affecting the lifetime decision of individuals, an age redistribution effect by changing the relative size of different cohorts, and a demographic effect by changing the growth rate of population. An increase in survival rates at the young or middle (old) age will reduce (increase) the capital-labour ratio and the wage rate and increase (decrease) the rate of interest.</p>|
|Appears in Collections:||Open Access Dissertations and Theses|
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