nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒10‒15
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Negligible Senescence: An Economic Life Cycle Model for the Future By Davide Dragone; Holger Strulik
  2. Who Feels the Nudge? Knowledge, Self-Awareness and Retirement Savings Decisions By Anders Anderson; David T. Robinson
  3. What drives UK defined benefit pension funds' investment behaviour? By Douglas, Graeme; Roberts-Sklar, Matt
  4. Predicting Retirement Savings Using Survey Measures of Exponential-Growth Bias and Present Bias By Shah Goda, Gopi; Levy, Matthew; Flaherty Manchester, Colleen; Sojourner, Aaron J.; Tasoff, Joshua
  5. The Long-Term Consequences of Having Fewer Children in Old Age: Evidence from China’s “Later, Longer, Fewer” Campaign By Yi Chen; Hanming Fang
  6. Thinking of Incentivizing Care? The Effect of Demand Subsidies on Informal Caregiving and Intergenerational Transfers By Costa-Font, Joan; Jimenez-Martin, Sergi; Vilaplana-Prieto, Cristina
  7. Mortality Risk, Insurance, and the Value of Life By Daniel Bauer; Darius Lakdawalla; Julian Reif
  8. The Chinese Pension System By Hanming Fang; Jin Feng
  9. Planning and financing urban social infrastructure for eldercare with housing equity in ageing europe By David Bogataj; Alenka Temeljotov Salaj; Rogelj Valerija; Marija Bogataj
  10. Retired, at last ? The short-term impact of retirement on health status in France By Thomas Barnay; Eric Defebvre
  11. Self-assessed cognitive ability and financial wealth: Are people aware of their cognitive decline? By Fabrizio Mazzonna; Franco Peracchi
  12. Understanding Joint Retirement By Pierre-Carl Michaud; Arthur van Soest; Luc Bissonnette
  13. The Growing American Health Penalty: International Trends in the Employment of Older Workers with Poor Health By Baumberg Geiger, Ben; Böheim, René; Leoni, Thomas
  14. The Pivotal Role of Fairness: Which Consumers Like Annuities? By Suzanne B. Shu; Robert Zeithammer; John W. Payne
  15. Exit and Disinvestment of Retirement Age Farmers in the US By Griffin, Bretford; Nadolnyak, Denis A.; Hartarska, Valentina

  1. By: Davide Dragone; Holger Strulik
    Abstract: We propose a model of aging and health deficit accumulation model with an infinite time horizon and a steady state of constant health. The time of death is uncertain and endogenous to lifestyle and health behavior. This setup can be conceptualized as a strive for immortality that is never reached. We discuss adjustment dynamics and show that the new setup is particularly useful to understand aging of the oldest old, i.e. of individuals for which morbidity and mortality have reached a plateau. We then show how the existence of a steady state can be used to perform comparative dynamics exercises analytically. As an illustration we investigate the effects of more expensive health investment and of advances in medical technology on optimal short run and long run health behavior.
    Keywords: comparative dynamics, endogenous mortality, life-expectancy, medical progress
    JEL: D91 I12 J17
    Date: 2018
  2. By: Anders Anderson; David T. Robinson
    Abstract: Using a financial literacy survey of Swedish pension investors matched to actual retirement savings decisions, we argue that respondents can be broken into three groups: those who are financially literate, those who mistakenly believe they are financially literate, and those who know that they are not. We examine how these groups respond differently to informational nudges encouraging them to take charge of their own investments. Investors with mistaken beliefs responded to the nudge, and were more likely to work with mass-market advisors who steer them into high-fee funds. They underperform as a result. By comparison, those who either possess financial literacy or else understand that they do not possess financial literacy were less likely to respond to the nudge. They avoided advisors, stayed with the low-cost default fund, and therefore accumulated retirement savings more quickly.
    JEL: G11 G18
    Date: 2018–09
  3. By: Douglas, Graeme (MKP Capital); Roberts-Sklar, Matt (Bank of England)
    Abstract: We have developed a structural model to explain defined benefit (DB) pension funds’ investment behaviour. The model is calibrated to the aggregate UK DB pension fund and four different cohorts of funds. We use the model to estimate how pension funds can be expected to adjust their asset portfolios in the face of different exogenous shocks. Our results suggest that pension funds are sensitive to shocks that change their funding ratios — that is, the ratio of pension assets to liabilities. Deteriorations in funding ratios encourage pension funds supported by financially weaker corporate sponsors to switch some equity holdings into bonds. This is because reduced funding ratios weigh on the perceived vulnerability of already weak corporate sponsors. But similar deteriorations in funding ratios encourage funds supported by financially stronger corporates to increase their equity holdings to benefit from their higher expected returns. In contrast, shocks that result in material improvements in funding ratios — for example, resulting from a large rise in interest rates — encourage all pension funds to increase their bond holdings to ‘lock in’ those improved positions.
    Keywords: Pension funds; procyclicality
    JEL: G11 G23
    Date: 2018–10–05
  4. By: Shah Goda, Gopi (Stanford University); Levy, Matthew (London School of Economics); Flaherty Manchester, Colleen (University of Minnesota); Sojourner, Aaron J. (University of Minnesota); Tasoff, Joshua (Claremont Graduate University)
    Abstract: In a nationally-representative sample, we predict retirement savings using survey-based elicitations of exponential-growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12 percent.
    Keywords: household finance, retirement savings, exponential-growth bias, quasi-hyperbolic discounting, present bias, financial literacy, survey-based elicitations
    JEL: D91 J26 D14
    Date: 2018–08
  5. By: Yi Chen; Hanming Fang
    Abstract: Family planning plays a central role in contemporary population policies. However, little is known about its long-term consequences in old age because of the identification challenge. In this study, we examine how family planning affects the quality of life of the Chinese elderly. The direction of the effect is theoretically unclear. On the one hand, having fewer children allows parents to reallocate more resources to themselves, improving their well-being. On the other hand, having fewer children also leads to less care and companionship from children in old age. To empirically probe the effect of family planning, we identify the causal impact by exploiting the provincial heterogeneity in implementing the “Later, Longer, Fewer” policies in the early 1970s. We find that the policies greatly reduced the number of children born to each couple by 0.85. Parents also receive less support from children in terms of living arrangements, inter vivos transfers, and emotional support. Finally, we find that family planning has drastically different effects on elderly parent's physical and mental well-being. Whereas parents who are more exposed to the family planning policies consume more and enjoy slightly better physical health status, they report more severe depression symptoms. Our study calls for greater attention to the mental health status of the Chinese elderly.
    JEL: H31 I15 I18 J13
    Date: 2018–09
  6. By: Costa-Font, Joan (London School of Economics); Jimenez-Martin, Sergi (Universitat Pompeu Fabra); Vilaplana-Prieto, Cristina (Universidad de Murcia)
    Abstract: We study the effect of demand-side subsidies to old age care recipients on both caregiving and intergenerational transfer decisions. We exploit two quasi-natural experiments referring to the inception of a universal and unconditional caregiving allowance in 2007 and its subsequent reduction in 2012. We find that the introduction of a caregiving allowance of a magnitude up to 530€ in 2011 increased the probability of informal caregiving by 32% and the intensity of care in 13.5 days/year. Consistently, we find that downstream (upstream) intergenerational transfers increased (decreased) in a magnitude of 29% (15%). The effects concentrate among middle and lower income households and were attenuated by the reduction of the subsidy.
    Keywords: caregiving, intergenerational transfers, unconditional transfer, difference-in-differences, long-term care, family transfers, exchange motivation, caregiving allowances, demand-side cash subsidies
    JEL: I18 D14 G22
    Date: 2018–08
  7. By: Daniel Bauer; Darius Lakdawalla; Julian Reif
    Abstract: We develop and apply a generalized framework for valuing health and longevity improvements that departs from conventional assumptions of full annuitization and deterministic mortality. In contrast to conventional theory, we find a given mortality improvement may be worth more, not less, to patients facing shorter lives. Using real-world data, we calculate that severe illness can increase the value of statistical life by over $1 million. This result reconciles an anomaly in the research on preferences for life-extension. Moreover, our framework can value the prevention of mortality and of illness. We calculate that treating illness is up to an order of magnitude more valuable to consumers than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Finally, we show that retirement annuities boost aggregate demand for life-extension. For instance, Social Security adds $11.5 trillion (10.5 percent) to the value of post-1940 longevity gains.
    JEL: H51 H55 I10
    Date: 2018–09
  8. By: Hanming Fang; Jin Feng
    Abstract: We provide a detailed overview of the current state of the Chinese pension system, as well as its development, its problems and some ideas for future reforms.
    JEL: H55
    Date: 2018–09
  9. By: David Bogataj; Alenka Temeljotov Salaj; Rogelj Valerija; Marija Bogataj
    Abstract: The objective of this paper is to introduce the model and to present a structure of the proper database for planning the social infrastructure for older population, including home-care, based on a multiple decrement/multi-state transition model, where a higher standard can be achieved by implementing flexible Equity Release Scheme (ERS) products. ERSs influence the purchasing power of seniors and therefore the probability of transitions in the decrement models is changing. (a) As the central objective, the multiple decrements approach is developed and applied in the program of housing and accompanying services needed for older citizens as a new tool for better forecasting housing needs of senior citizens with decreasing functional capacities, and therefore the changing services and housing needs over their lifetime horizon. (b) To discuss new urban management model that generate shared values for community, users and commercial actors. (c) The Flexible Equity Release Scheme is developed tied with the person and not with his/her housing unit, as a novelty in the scientific and professional literature. The schemes are embedded in the directed graph of multiple decrements. The impact of higher purchasing power in case of using reverse mortgage benefits is evaluated, especially the impact on the probability of transitions in optimal adjustments to the needs of seniors when their functional capacities are reduced. The model can be used for policy makers on national or community level as well as to banks and insurance companies which are willing to develop such programs in Central and Eastern Europe, where such products are not developed yet. The case study for Slovenian state of the art and the policy development is presented.
    Keywords: facilities for elderly persons; Housing; housing equity withdrawal; multistate transition model
    JEL: R3
    Date: 2018–01–01
  10. By: Thomas Barnay (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UPEM - Université Paris-Est Marne-la-Vallée, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique); Eric Defebvre (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UPEM - Université Paris-Est Marne-la-Vallée, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique)
    Date: 2018–09–21
  11. By: Fabrizio Mazzonna (Università della Svizzera Italiana); Franco Peracchi (Georgetown University and EIEF)
    Abstract: We investigate whether people correctly perceive their own cognitive decline and the potential financial consequences of misperception. Using longitudinal data from the Health and Retirement Survey, we examine the relationship between self-ratings of memory ability and assessed memory performance and show that older people tend to underestimate their own cognitive decline. We then investigate the financial consequences of this underestimation. We show that respondents who experience a severe cognitive decline across waves, but are unaware of it, are more likely to experience financial losses. Finally, we examine potential explanations for the patterns of wealth changes observed among respondents who are unaware of their cognitive decline. Our findings support the view that financial losses among unaware respondents reflect bad financial decisions, not rational disinvestment strategies.
    Date: 2018
  12. By: Pierre-Carl Michaud; Arthur van Soest; Luc Bissonnette
    Abstract: Evidence from different sources shows that spouses' retirement decisions are correlated. Retirement policies affecting individuals in couples are therefore also likely to affect behavior of their spouses. It is therefore important to account for joint features in modeling retirement. This paper studies a structural collective model of labor supply and retirement of both partners in a couple with interdependent preferences, imperfect knowledge of preferences of the spouse, and subjective expectations about the future. We propose a novel method to estimate preferences and the intra-household bargaining process, which relies on stated preferences data collected in the Health and Retirement Study. Respondents were asked to choose between hypothetical retirement trajectories describing the retirement ages and replacement rates of both spouses from three perspectives: considering their own preferences only, the preferences of their spouse only, or the most likely decision for the household. With these data, all model parameters are identified and potential sources of joint retirement can be disentangled. We find that males misperceive their wives' preferences, overestimating their disutility of work. Our estimates correct for this bias. They suggest that correlation in unobserved heterogeneity components of the partners' marginal utility of leisure explains a large share of joint retirement decisions. We also find significant positive complementarities in leisure, but this explains a much smaller part of joint retirement.
    JEL: C81 D13 J26
    Date: 2018–09
  13. By: Baumberg Geiger, Ben (University of Kent); Böheim, René (University of Linz); Leoni, Thomas (WIFO - Austrian Institute of Economic Research)
    Abstract: Many countries have reduced the generosity of disability benefits while making them more activating – yet few studies have examined how employment rates have subsequently changed. We present estimates of how the employment rates of older workers with poor health in 13 high-income countries changed between 2004-7 and 2012-15 using HRS/SHARE/ELSA data. We find that those in poor health in the USA have experienced a unique deterioration: they have not only seen a widening gap to the employment rates of those with good health, but their employment rates fell per se. We find only for Sweden (and possibly England) signs that the health employment gap shrank. We then examine possible explanations for the development in the USA: we find no evidence it links to labour market trends, but possible links to the USA's lack of disability benefit reform – which should be considered alongside the wider challenges of our findings for policymakers.
    Keywords: disability benefits, employment of older workers, health employment gap
    JEL: J14 J18 H55
    Date: 2018–08
  14. By: Suzanne B. Shu; Robert Zeithammer; John W. Payne
    Abstract: Life annuities can be a valuable component of the decumulation stage of wealth during retirement. While economists argue that most retirees should annuitize, actual demand in the marketplace is low. We analyze data from two studies to determine how measurable individual differences among consumers affect their interest in annuities. We find that a relatively high percentage of respondents dislike all annuities. Demographic factors are not predictive of which individuals dislike annuities, and individual factors predicted by economic models to be important (such as beneficiaries) have small or even opposite effects. The strongest individual differences we measured that predicts liking of annuities is the respondent’s perception of product fairness. We discuss implications of our findings for financial planners hoping to help their customers with these decumulation challenges.
    JEL: G02 G22 M31
    Date: 2018–09
  15. By: Griffin, Bretford; Nadolnyak, Denis A.; Hartarska, Valentina
    Keywords: Demand and Price Analysis, Agribusiness Economics and Management, Household and Labor Economics
    Date: 2018–06–20

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