Economic Analysis of Social Security Survivors Insurance

Abstract

This paper develops a heterogeneous agents model to analyze the effects of Social Security survivors insurance. The model features a negative mortality-income gradient, asymmetric information of individual mortality rates, and a warm-glow bequest motive that varies by age and family structure. The model matches lifecycle changes in life insurance coverage, and generates advantageous selection in the insurance market. For male agents, reducing survivors benefits for dependent children generates welfare losses, while reducing survivors benefits for aged spouses produces welfare gains. The opposing welfare results are explained by differences in the timing of benefits and in the funding cost.

Keywords: Social Security, bequest motive, life insurance, asymmetric information

JEL Classification: D15, D82, E21, G22, H55