Life, Death, and the Economy: Mortality Change in Overlapping-Generations Model

Authors

• Shripad Tuljapurkar

Abstract

Demographers have shown that there are regularities in mortality change overtime, and have used these to forecast changes due to population aging. Such models leave out potential economic feedbacks that should be captured by dynamic models such as the general-equilibrium, overlapping-generations model first studied by Yaari and Blanchard. Previous analytical and simple numerical work by economists has focused on comparative statics and used simplistic representations of mortality, such as the assumption of a constant age-independent death rate, or some parametric approximation to a survival curve. We show that it is straight forward to analyze equilibria in such models if we work with the probability distribution of the age at death. US and other data show that this distribution can be plausibly described by a normal distribution {for this case we obtain analytical results. For the general case we have numerical results. We show that a proper accounting for the uncertainty of when one dies has significant qualitative and quantitative effects on the equilibria of such economic models. There are, in turn, significant lessons to be drawn for models of future fiscal policy.

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Project

• UM01-03: Stochastic Modeling of the Dynamics of OASDI: Evaluation of Policy Alternatives and Behavioral Responses

Paper ID

WP 2004-072

Publication Type

Working Paper

Publication Year

2004