The life-cycle model of saving with uncertain lifetime and borrowing constraint; characterization and sensitivity analysis

This paper investigates the characterization and sensitivity analysis of th e life-cycle model of saving with uncertain lifetime and borrowing constrai nt first formulated by Yaari [Review of Economic Studies 32 (1965) 137-150] . Under mild conditions, terminal wealth depletion is shown to be an intrin sic property of the model. A three-step procedure fbr the sensitivity analy sis is presented. While the presence of an endogenous wealth depletion time complicates the sensitivity analysis, incorrect and misleading sensitivity results will be obtained if the existence of terminal wealth depletion is ignored. (C) 2001 Elsevier Science B.V. All rights reserved.