How much retirement income is needed in order to maintain one’s living standard at old age? As it is difficult to find a firm basis for an empirical treatment of this question, we employ a novel approach to assessing an adequate replacement rate vis-à-vis income in the pre-retirement period. We subject indications regarding satisfaction with current income as collected in the German Socio-Econo...

Evidence on Individual Preferences for Longevity Risk The standard model of intertemporal choice assumes risk neutrality toward the length of life: due to additivity, agents are not sensitive to a mean preserving spread in the length of life. Using a survey fielded in the RAND American Life Panel (ALP), this paper provides empirical evidence on possible deviation from risk neutrality with respe...

The Asset and Health Dynamics Among the Oldest Old (AHEAD) study shows a large increase in reported total wealth between 1993 and 1995. Such an increase is not found in other US household surveys around that period. This paper examines one source of this difference. We find that in AHEAD 1993 ownership rates of stocks, CDs, bonds, and checking and saving accounts were under-reported, resulting ...

We study the dynamic investment and reporting problem of a financial institution subject to capital requirements based on self-reported VaR estimates, as in the Basel Committee’s Internal Models Approach (IMA). With constant price coefficients, we show that optimal portfolios display a local three-fund separation property. VaR-based capital requirements induce financial institutions to tilt the...

This paper provides a life-cycle framework for weighing up the insurance value of disability bene ts agains the incentive cost. Within this framework, we estimate the life-cycle risks that individuals face in the US, as well as the parameters governing the disability insurance program, using indirect inference and longitudinal data on consumption, disability status, disability insurance receipt...

A random life expectancy and a positive relationship between the probability of dying and the degree of addiction are incorporated into a model of rational addiction. The BeckerMurphy equality between the addictive commodity’s full price and marginal utility is modified by discounting the market price and marginal utility of the addictive commodity by the probability of survival. The individual...

We introduce endogenous probability of survival in the standard Keynes-Ramsey optimal growth model. An individual’s probability of survival is assumed to be dependent on past levels of consumption. Endogenous probability of survival effectively also implies that the rate of time preference (or degree of patience) of an individual is no longer an exogenously given parameter. We solve the dynamic...

Based on a cognitive notion of neo-additive capacities reflecting likelihood insensitivity with respect to survival chances, we construct a Choquet Bayesian learning model over the life-cycle that generates a motivational notion of neoadditive survival beliefs expressing ambiguity attitudes. We embed these neoadditive survival beliefs as decision weights in a Choquet expected utility life-cycle...

I study the implications of various bankruptcy regimes for student loans on college investment, human capital accumulation, and earnings in a heterogeneous life-cycle economy with risky human capital investment. The option to discharge one’s debt under a liquidation regime helps alleviate some of the risk of investing in human capital. However, dischargeability triggers exclusion from borrowing...

If access to credit is limited (especially when young or unemployed) but ”bad” jobs are easy to come by, then job seekers might use short term employment in undesirable jobs as a way to finance consumption during subsequent unemployed search for a “good” job. In this paper we explore this idea in two ways. First, we document empirical patterns of short term employment and asset accumulation amo...