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

Qi Li, Stanford University
Shripad Tuljapurkar, Stanford University

Demographers have shown that there are regularities in mortality change over time, and have used these to forecast changes due to population aging in the models lack of potential economic feedbacks. 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 straightforward 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.