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Publication Date: March 2011
Publisher: Center for Retirement Research at Boston College
Author(s): Matthew S. Chambers
Research Area: Economics
Keywords: health
Type: Report
Coverage: United States
Abstract:
This paper explores life insurance holdings from a general equilibrium perspective. Drawing on the data explored in Chambers, Schlagenhauf, and Young (2003), we calibrate an overlapping generation’s life cycle economy with incomplete asset markets to match facts regarding the uncertainty of income and demographics. We then estimate that life insurance holdings for the purpose of smoothing family consumption are so large that they constitute a puzzle from the perspective of standard economic theory. Furthermore, the welfare gains from a life insurance market are concentrated in the minds of households who use the real world market very little.