nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒09‒29
seven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Differential Mortality in Europe and the U.S.: Estimates Based on Subjective Probabilities of Survival By Adeline Delavande; Susann Rohwedder
  2. Retirement Systems, Demography, Happiness and Welfare Redistribution By Barbara Ferrari; Luigi Mittone; Marco Tecilla
  3. Feminization of Ageing and Long Term Care Financing in Singapore By Chia Ngee Choon; Shawna Lim Shi en; Angelique Chan
  4. Demographic Uncertainty and Welfare in a Life-cycle Model under Alternative Public Pension Systems By M Saifur Rahman
  5. Forecasting the Cost of U.S. Health Care in 2040 By Robert W. Fogel
  6. On the feasibility of notional defined contribution systems: The German case By Christina Benita Wilke
  7. Health Indexes and Retirement Modeling in International Comparisons By Erik Meijer; Arie Kapteyn; Tatiana Andreyeva

  1. By: Adeline Delavande; Susann Rohwedder
    Abstract: Estimates of differential mortality by socioeconomic status play an important role in several domains: in public policy for assessing distributional effects of public programs; in financial markets for the design of life insurance and annuities; and in individual decision making when figuring out how much to save for retirement. Traditionally, reliable estimates of differential mortality require rich panel data with large sample size. This paper proposes a new, less data-intensive approach relying on just a single cross-section of data. Rather than using observations on actual mortality in panel over time, the authors propose relating individuals' subjective probabilities of survival to variables of socioeconomic status in cross-section. They formulate the method in a model of survey response and provide an empirical validation based on data from the Health and Retirement Study comparing the alternative estimates to the traditional estimates of differential mortality for the same sample of baseline respondents. They present two applications. First, they document an increase in differential mortality in the U.S. over time, and second, they produce comparable estimates of differential mortality for 10 European countries and the U.S. based on subjective probabilities of survival.
    JEL: J10
    Date: 2008–07
  2. By: Barbara Ferrari; Luigi Mittone; Marco Tecilla
    Abstract: This research investigates whether an equity improvement within retirement-systems domain may positively influence demography, people’s happiness and their financial conditions. In particular, a fertility-boosting policy has been tested, acting on the contributory rate. This project has been carried out by using software simulation and with specific Agent-based Computational Economics (ACE) methodology. Two virtual worlds have been created, in order to try to reproduce Italian society. In the first model, (W1), vertical equity has been improved, while in the second one, (W2), it is has not. Five further variants of these two worlds have been produced by altering some parameters, in order to test our hypothesis through several simulations. The research outcomes prove that an equity improvement can positively influence demographic trends, can increase the level of happiness in the society, and can grant a more homogeneous welfare redistribution.
    Keywords: Retirement systems, demography, happiness, wealth distribution, equity, software simulation, Agent Based Computational Economics
    Date: 2008
  3. By: Chia Ngee Choon (Department of Economics, National University of Singapore); Shawna Lim Shi en (Department of Economics, National University of Singapore); Angelique Chan (Department of Sociology, National University of Singapore)
    Abstract: Feminization of ageing leads to issues relating to long term healthcare financing since females are more susceptible to chronic illnesses. This paper assesses the current provision of long-term care (LTC) in Singapore by first examining the health status of elderly female; and then estimates the present value of LTC expenses. We calibrate the LTC costs for institutional nursing homes, community homes and informal home-based care with domestic helper. We next evaluate the comprehensiveness of a private disability insurance scheme in Singapore (Eldershield) in capturing the expected share of LTC expenditures. We compare the policy comprehensiveness of Eldershield payouts for different utilizations of LTC at different levels of means-tested government subsidies. With subsidies, the LTC cost can be adequately covered by Eldershield; without any subsidies, Eldershield is able to capture 25% to 40% of the LTC costs. We also evaluate the LTC financing implications after an osteoporotic hip fracture surgery.
    Keywords: health financing, long-term care, ageing, disability insurance, policy comprehensiveness
    JEL: H51 I11 J14
    Date: 2008–09–08
  4. By: M Saifur Rahman (Indiana University Bloomington)
    Abstract: In this paper, I analyze consumption, aggregate savings, output and welfare implications of five different social security arrangements whenever there is demographic uncertainty. Following Bohn (2002), I analyze the effect of an uncertain population growth in an extended version of a modified Life-cycle model developed by Gertler (1999). Population growth dampens savings and output under all arrangements. Pay-as-you-go-Defined Benefit system appears to fare better than all other alternatives, falling short of the private annuity market with no pension system. But social security in general increases social welfare, with Fully Funded systems faring the best. Thus there appears to be a clear trade-off between growth and social welfare. The social security system also reduces the volatility of the economy.
    Date: 2008–09
  5. By: Robert W. Fogel
    Abstract: One of the most important debates among health economists in rich nations is whether advances in biotechnology will spare their health care systems from a financial crisis. We must consider that prevalence rates of chronic diseases declined during the twentieth century and that this rate of decline has accelerated. However, health care costs may continue to increase even as the age of onset of chronic diseases is delayed, because the proportion of a cohort living to late ages will increase. The accelerating decline in the prevalence of chronic diseases during the course of the twentieth century supports the proposition that increases in life expectancy during the twenty-first century will be fairly large, but the effect on health care in the U.S. will be modest. The income elasticity for health services is calculated at 1.6, meaning that income expenditures on health care in the U.S. are likely to rise from a current level of about 15 percent to about 29 percent of GDP in 2040.
    JEL: I11
    Date: 2008–09
  6. By: Christina Benita Wilke (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Notional defined contribution (NDC) systems have strongly been being debated in the worldwide pension literature in the past years. This paper deals with the feasibility of such NDC systems. The focus is on the German case, where the recent 2004 pension reform introduced a so-called sustainability factor, that de facto incorporates some crucial characteristics of an NDC system into the public pension system, but maintains the traditional benefit indexation formula approach. The paper analyzes the effects a hypothetical introduction of an NDC system would have on the financial situation of the German PAYG system. It is found that a genuine NDC system would be feasible in the sense that it would be financially possible and would achieve gross pension levels above, equal or only slightly below those that can be forecasted for the standard pensioner under the present German pension system. However, it is shown that an NDC system would require large buffer funds which are currently not available. Furthermore, the distribution of pension income among cohorts and across time would be very different and may be hard to motivate from a political perspective. Altogether, it becomes clear that an NDC system cannot solve the demographic problems but simply copes with them in a different way than conventional PAYG systems. Thus, it does not replace the necessity to supplement the public pension system by a funded second and third private pillar in order to prepare for the future demographic changes.
    Date: 2008–09–15
  7. By: Erik Meijer; Arie Kapteyn; Tatiana Andreyeva
    Abstract: It is widely believed that health plays a major role in retirement decisions. The most important problem in including health in retirement models is the lack of availability of a good measure of health at the individual level in existing data sets. This problem is exacerbated when a model spanning multiple countries is desired, because self-reports on health may not be comparable across countries. Arguably, physical measures are less influenced by cultural and linguistic differences than self-reports on general health or even on health conditions. The authors develop a cross-country measurement model for health in which the relations between functional limitations, self-reports, and physical measures like grip strength are used to construct health indexes. Comparability across countries is achieved by using the physical measurements to define the measurement scales, and allowing other parameters to vary across countries to account for cultural and linguistic differences in response patterns. The usefulness of the health indexes is then investigated by including it in some simple retirement models.
    JEL: I19 J26 C81 C35
    Date: 2008–08

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