Document Type

Discussion Paper

Publication Date

5-1-2020

CFDP Number

2231R

CFDP Revision Date

December 18, 2020

CFDP Pages

41

Journal of Economic Literature (JEL) Code(s)

D91, G11, J14, J17

Abstract

We analyze lifecycle saving strategies using a recursive utility model calibrated to match empirical estimates of the value of a statistical life. The novelty of our approach is that we require preferences to be monotone with respect to first order stochastic dominance. The framework we use can disentangle risk aversion and the intertemporal elasticity and can feature a positive value of life without placing constraints on the value of the risk aversion parameter or the intertemporal elasticity of substitution. We show that, with a positive value of life, risk aversion reduces savings, decreases stock market participation and decreases annuity purchase. Risk averse agents are willing to make an early death a not-so-adverse outcome by enjoying greater consumption when young and bequeathing wealth in case of death. The model can rationalize low annuity demand while also matching empirically documented levels of wealth and private investments in stocks.

Additional Files
d2231-rs.pdf (426 kB)
Supplemental material
Download

Included in

Economics Commons

Share

COinS