Social Security and Longevity Risk: The Case of Risky Bequest Income

Downloadable Content

Download this item
Abstract
  • This paper quantifies the welfare gains from Social Security when individuals face uninsurable longevity risk. While past researchers have studied this basic question, we do so from a unique perspective. In contrast to traditional macroeconomic models that abstract from specific linkages between parents and children, in our model, children are born to specific parents whose longevity is uncertain. And because parental asset holdings evolve over the life of the parent, children face uninsurable bequest income risk in addition to their own longevity risk. We find that Social Security improves ex ante expected utility by 3.4% of lifetime consumption (for the second generation). Because our baseline analysis assumes full information and optimal hedging of longevity risk, we treat these welfare gains as a conservative estimate, and we show that the gains are significantly larger when individuals fail to hedge their longevity risk.
TitleSocial Security and Longevity Risk: The Case of Risky Bequest Income
CreatorCaliendo, F. N.
Cottle Hunt, Erin
PublisherMacroeconomic Dynamics
Academic DepartmentEconomics
DivisionSocial Sciences
OrganizationLafayette College
Date IssuedSeptember 2022
Date Available2023-01-24
TypeArticle
LanguageEnglish
KeywordLongevity Risk
Social Security
Bequest Income Risk
Bibliographic CitationCottle Hunt, E. and F. N. Caliendo (2022 Sept) "Social Security and Longevity Risk: The Case of Risky Bequest Income." Macroeconomic Dynamics 26 (6): 1647-1678.
Standard IdentifierDOI 10.1017/S1365100521000018
Handle 10385/n296x0715
Permalinkhttp://hdl.handle.net/10385/n296x0715
Rights Statement In Copyright In Copyright
Rights HoldersCambridge University Press
Contains
File CottleHunt-MacroeconomicDynamics-vol26-2022.pdf Uploaded 2023-01-24 Public Download

Member of Collection

Faculty Publications

View Collection