Template-Type: ReDIF-Paper 1.0
Title: The Equilibrium Effects of Mortality Risk
Author-Name: Andrea Modena
Author-Email: andrea.modena@uni-mannheim.de
Author-Name: Luca Regis
Author-Email: luca.regis@unito.it
Author-Name:  Giorgio Rizzini
Author-Email: giorgio.rizzini@sns.it
Classification-JEL: C6; G11; G52

Keywords: equilibrium; mortality risk; portfolio choice; stochastic optimal control

Abstract: In this paper, we invesstigate how mortality risk affects agents optimal decisions and asset prices within a general equilibrium framework.
In our model, risk averse households facing a stochastic mortality rate allocate their net worth among consumption, risky capital production, and risk-free bonds to maximise
intertemporal utility. In this setting, we show that a negative and time-varying correlation exists between mortality and risky asset prices, even when production
and mortality risks are mutually independent. The correlation arises because higher mortality rates reduce the incentive to save for the future, leading to
increased current consumption and decreased capital investment. As a result, higher mortality lowers the prices of risky capital and raises the risk-free rate in
equilibrium. Calibrated simulations suggest that endogenous price effects account for the largest share of welfare gains and losses following sharp changes in
mortality, such as pandemics or rapid increases in longevity.
Note: 
Length: 29
Creation-Date: 2025-10
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp709
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_709