An OLG Model for Optimal Investment and Insurance Decisions

Abstract

This article uses overlapping generation (OLG) model to study individuals' optimal decision on consumption, investment, insurance, and education expenses. To the best of our knowledge, we are the first to discuss the individuals' demand for insurance with the consideration of intergenerational transfer payments. In the article, we incorporate insurance into the OLG model to describe individuals' optimization problem on consuming and saving, and we solve the optimal proportions of expenditure on investment, survival insurance, life insurance, and education, with the optimal consumption to be the remaining parts of expenditure. We observe that the numerical outputs are consistent with the actual data. It is also interesting to find that the human capital investment is independent of both risky asset investment and individuals' risk aversion coefficient.

The Effect of Health Shock and Basic Medical Insurance on Family Educational Investment for Children in China

“…Let stand for the fixed wage rate and d t stand for the working hours. We assume that the child’s salary is determined by the parental salary and education investment e t , on the basis of the Cobb Douglas production function to describe the child wage growth model, referring to [ 19 ]; that is: where A and δ represent the efficiency of education expenditure to improve the child’s wage level.…”