TY  - JOUR
AU  - Hansen,Gary D.
AU  - Imrohoroglu,Selahattin
TI  - Consumption Over the Life Cycle: The Role of Annuities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12341
PY  - 2006
Y2  - June 2006
UR  - http://www.nber.org/papers/w12341
L1  - http://www.nber.org/papers/w12341.pdf
N1  - Author contact info:
Gary Hansen
UCLA
Department of Economics
8283 Bunche Hall
Box 951477
Los Angeles, CA 90095
Tel: 310/825-3847
Fax: 310/825-9528
E-Mail: ghansen@econ.ucla.edu
AB  - We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption tends to rise early in life, peak around age 45-55, and to decline after that. Our calibrated model exhibits life cycle consumption that is consistent with this pattern. This follows from the fact that, due to a lack of annuity markets, households discount the future more heavily as they age and their probability of survival falls. Once an unfunded social security system is introduced, the profile is still hump shaped, but the decline in consumption does not begin until after retirement in our base case. Adding a bequest motive causes this decline to begin at a younger age.
ER  -