Economics Weekly Seminar: Mausumi Das
April 17 @ 1:30 pm - 2:40 pm
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Title: Death and Capital: Physical and Human Capital Investment under Mortality Shock
Speaker: Mausumi Das, Delhi School of Economics
Wednesday, April 17, 1:30 – 2:40pm
AC 02 LR 105
Two questions motivate this paper: (i) to what extent can dynastic altruism substitute for missing annuities in maintaining overall investment under lifetime uncertainty, and (ii) how does lifetime uncertainty affect the pattern of investment and economic development? In a life-cycle model, parents value the transfer of tangible assets to their offspring in the event of premature death which increases the subjective reward they obtain from investing in them. Consumption risk in the absence of annuities, on the other hand, discourages investment. We show that parental altruism can compensate for the absence of annuities under empirically plausible degrees of risk aversion. When people also invest in intangible human capital, lifetime uncertainty tilts portfolio choice in favor of tangible assets. This can translate into divergent growth paths, delayed transition from physical to human capital accumulation and a dampened response to mortality shock in developing countries.