Continuity and catastrophic risk

Suppose that a decision-maker’s aim, under certainty, is to maximize some continuous value, such as lifetime income or continuous social welfare. Can such a decision-maker rationally satisfy what has been called ‘continuity for easy cases’ while at the same time satisfying what seems to be a widespread intuition against the full-blown continuity axiom of expected utility theory? In this note I argue that the answer is ‘no’: given transitivity and a weak trade-off principle, continuity for easy cases violates the anti-continuity intuition. I end the note by exploring an even weaker continuity condition that is consistent with the aforementioned intuition.

Progressive Pension Formula and Life Expectancy Heterogeneity

An increasing number of empirical studies have shown a positive relationship between lifetime income and life expectancy at retirement. One’s income during the active part of one’s career translates into the amount of retirement benefits one might receive, leading to actuarial unfairness inside cohorts of retirees. In order to discuss unfairness and sustainability issues, the Belgium pension reform committee issued a proposal for a point system designed to be both sustainable and adequate. In this paper, we use a similar defined benefit framework in order to set out a compensation mechanism linked to life expectancy heterogeneity during the active part of the career, aiming to reduce unfairness once reaching retirement. This method is based on the progressivity of pension benefit formulae. We implement these ideas in a simple demographic context in order to capture the constraints related to the model.

Genetic Influences on Lifetime Income Increases with Gender Equality

Over the twentieth century, the gender gap in income has decreased dramatically. We study whether the relative importance of genetic and environmental influences for lifetime income changed as gender equalization took place. We use data on 11,677 twin pairs from Norway born 1915-1991, linked with individual-level administrative data on the full population's incomes in the period 1967-2016. Our results based on genetically sensitive variance decompositions shows that as social constraints inhibiting women from earning income waned over the century, the heritability of lifetime income increased over birth cohorts. Genetic influences matter more for men than for women, and non-shared environmental influences matter more for women than for men. This indicates that women still face structural constraints to a larger degree than men. Even in a welfare state like Norway where gender equality has been a political goal since the 1950s, equalization, as measured by the heritability of lifetime income, did not manifest itself to a high degree until the latest cohorts were established in the workforce (1981-1991). Our study shows the importance of considering historical developments of ascribed statuses such as gender when investigating genetic influences, and that genetics can serve as a prism through which to study social change.

Plus a Life Sentence? Incarceration’s Effects on Expected Lifetime Wage Growth

The United States incarcerates citizens at rates higher than those of any other developed nation, with impacts on not only government budgets but economic growth rates. Using the National Longitudinal Survey of Youth for 1997, we model the effects of incarceration on wage growth rates using inverse probability weighted regression adjusted (IPWRA) propensity score matching to recognize the selection bias among the members of the sample who serve prison terms. Results show that incarceration reduces average lifetime income growth by one-third even for a relatively short earning period, with that depth depending on length of sentence, employment history, and education level in some surprising ways.

Going beyond GDP with a parsimonious indicator: inequality-adjusted healthy lifetime income

Per capita GDP has limited use as a well-being indicator because it does notcapture many dimensions that imply a “good life”, such as health and equality ofopportunity. However, per capita GDP has the virtues of being easy to interpret andto calculate with manageable data requirements. Against this backdrop, there is aneed for a measure of well-being that preserves the advantages of per capita GDP,but also includes health and equality. We propose a new parsimonious indicatorto fill this gap, and calculate it for 149 countries. This new indicator could beparticularly useful in complementing standard well-being indicators during theCOVID-19 pandemic. This is because (i) COVID-19 predominantly affects olderadults beyond their prime working ages whose mortality and morbidity do notstrongly affect GDP, and (ii) COVID-19 is known to have large effects on inequalityin many countries.

The Cost of Lost Productivity Due to Premature Chagas Disease-Related Mortality: Lessons from Colombia (2010–2017)

Background: Economic burden due to premature mortality has a negative impact not only in health systems but also in wider society. The aim of this study was to estimate the potential years of work lost (PYWL) and the productivity costs of premature mortality due to Chagas disease in Colombia from 2010 to 2017. Methods: National data on mortality (underlying cause of death) were obtained from the National Administrative Department of Statistics in Colombia between 2010 and 2017, in which Chagas disease was mentioned on the death certificate as an underlying or associated cause of death. Chagas disease as a cause of death corresponded to category B57 (Chagas disease) including all subcategories (B57.0 to B57.5), according to the Tenth Revision of the International Statistical Classification of Diseases and Related Health Problems (ICD-10). The electronic database contains the number of deaths from all causes by sex and 5-year age group. Economic data, including wages, unemployment rates, labor force participation rates and gross domestic product, were derived from the Bank of the Republic of Colombia. The human capital approach was applied to estimate both the PYWL and present value of lifetime income lost due to premature deaths. A discount rate of 3% was applied and results are presented in 2017 US dollars (USD). Results: There were 1261 deaths in the study, of which, 60% occurred in males. Premature deaths from Chagas resulted in 48,621 PYWL and a cost of USD 29 million in the present value of lifetime income forgone. Conclusion: The productivity costs of premature mortality due to Chagas disease are significant. These results provide an economic measure of the Chagas burden which can help policy makers allocate resources to continue with early detection programs.

Addressing Longevity Risk: How Best to Annuitize Defined Contribution Assets?

Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

Fairness and annuity divisors for notional defined contribution pension schemes

The use of a gender-neutral annuity divisor introduces an intra-generational redistribution from short-lived towards long-lived individuals; this entails a transfer of wealth from males to females and from low socioeconomic groups to high socioeconomic groups. With some subpopulations consisting of females from low socioeconomic groups (or males from high groups), the net effect of the redistribution is unclear. The study aims to quantify the lifetime income redistribution of a generic NDC system using two types of divisor – the demographic and the economic – to compute the amount of an initial pension. With this in mind, the redistribution (actuarial fairness) among subpopulations is assessed through the ratio between the present value of expected pensions received and contributions paid. We find that all subgroups of women and men with high educational attainment benefit from the use of the unisex demographic divisor. This paper also shows that the value of the economic divisor depends markedly on population composition. When mortality differentials by gender and level of education are considered, economic divisors are mostly driven by the longevity effect corresponding to gender.