Probabilistic Aging

CESifo Working Paper Series No. 1680

University of St. Gallen Economics Discussion Paper No. 8

44 Pages Posted: 27 Apr 2005

See all articles by Dominik Grafenhofer

Dominik Grafenhofer

Institute for Advanced Studies (IHS); Johannes Kepler University Linz

Christian Jaag

Swiss Economics; University of St. Gallen - Institute of Public Finance and Fiscal Law

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Mirela Keuschnigg

Johannes Kepler University

Date Written: March 2006

Abstract

The paper develops an overlapping generations model with probabilistic aging of households. We define age as a set of personal attributes such as earnings potential, health and tastes that are characteristic of a person's position in the life-cycle. In assuming a limited number of different states of age, we separate the concepts of age and time since birth. Agents may retain their age characteristics for several periods before they move with a given probability to another state of age. Different generations that share the same age characteristics are aggregated analytically to a low number of age groups. The probabilistic aging model thus allows for a very parsimonious yet rather close approximation of demographic structure and life-cycle differences in earnings, wealth and consumption. Existing classes of overlapping generations models follow as special cases.

Keywords: overlapping generations, aging, demographics, life-cycle earnings

JEL Classification: D58, D91, H55, J21

Suggested Citation

Grafenhofer, Dominik and Jaag, Christian Yvo and Keuschnigg, Christian and Keuschnigg, Mirela, Probabilistic Aging (March 2006). CESifo Working Paper Series No. 1680; University of St. Gallen Economics Discussion Paper No. 8. Available at SSRN: https://ssrn.com/abstract=707425

Dominik Grafenhofer

Institute for Advanced Studies (IHS) ( email )

Josefstädter Straße 39
1080 Vienna
Austria
++43 1 59991 309 (Phone)
++43 1 59991 555 (Fax)

Johannes Kepler University Linz ( email )

Altenberger Str. 69
A-4040 Linz
Austria

Christian Yvo Jaag

Swiss Economics ( email )

Stampfenbachstr. 142
Zurich, CH-8006
Switzerland

University of St. Gallen - Institute of Public Finance and Fiscal Law ( email )

Rosenbergstrasse 51
St. Gallen, St. Gallen CH-9000
Switzerland

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Mirela Keuschnigg

Johannes Kepler University ( email )

Altenbergerstr. 69
Linz, Uper Austria 4040
Austria

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