End-of-Life Liquidity


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Abstract. Uncertainty about one’s lifespan induces a preference for end-of-life liquidity (Yaari, 1965). Such preference, which can be characterized as a warm-glow motive but need not be interpreted that way, interacts with institutional constraints to shape life-cycle behaviors. We illustrate its quantitative importance using a model of consumption, labor supply, and retirement decisions and document a little-known set of distortions that annuity plans, including the U.S. social security, impose on life-cycle decisions through the illiquid and uncertain nature of its entitlements. A minor policy change that reduces the value of retirement annuities in exchange for a guaranteed amount upon death induces large effects on life-cycle allocations and raises welfare, especially among unmarried individuals with low education. These findings are relevant for the design of annuity programs, whether public or private.

Citation

@article{bairoliya2023end,
  title={End-of-Life Liquidity},
  author={Bairoliya, Neha and Gallipoli, Giovanni and McKiernan, Kathleen},
  journal={Available at SSRN 4585698},
  year={2023}
}

Author: gallipol

Giovanni Gallipoli is a professor at UBC in Vancouver. Giovanni's research focuses on the origins and consequences of economic inequality with a focus on how heterogeneity shapes individual behaviors and aggregate economic outcomes. Giovanni has worked on a variety of topics, including the equilibrium effects of policies that promote skill formation; the link between skill heterogeneity and a country's comparative advantage; the influence of families on long-term outcomes such as labor supply and consumption; intergenerational mobility and the linkages between parental heterogeneity and inequality; and how firm-level differences contribute to variation in workers’ skill returns. Giovanni is a recipient of the Killam Research Award, the FEEM Award, and the Young Economist Award of the European Economic Association. He is a CEPR research fellow as well as a former Fulbright Scholar and Weatherhall fellow. He serves as a member of the external board of overseers of the Panel Study of Income Dynamics (PSID) and as an associate editor of the Journal of Political Economy. Giovanni is an alumnus of the Sant'Anna School of Advanced Studies and the University of Pisa in Italy. He received his Ph.D. in Economics from University College London in the UK.