The contribution of improved joint survival conditions to living standards: an equivalent consumption approach (Q258946): Difference between revisions

Let \(p_{ijx}\) denote the probability of remaining coexistence of duration \(x\) for two persons \(i\) and \(j\), and let \(S_{ijx}\) be the unconditional probability of joint survival until \(x\) period from now for persons \(i\) and \(j\). Then the joint life expectation for these two persons \(i\) and \(j\) can be expressed by the following two ways \[ \mathbb{E}(L_{ij})=\sum\limits_{x=0}^{T}x\,p_{ijx}=\sum\limits_{x=0}^{T-1}S_{ijx+1}, \] where \(T\) is the maximal duration of life. Joint life expectation shows how many years two individuals can expect to remain both alive, conditionally on the prevailing average survival conditions. This measure does not tell us whether those individuals will live in the same house or not, will divorce or not, etc. This measure focuses only on joint survival, independently from the circumstances under which this joint survival will take place. The author constructs an equivalent consumption measure incorporating gains in single and joint live expectations using a life-cycle model with risky lifetime. Such a measure is constructed for independent mortality risks and for dependent mortality risks, where the dependence structure is generated by the Frank copula. Using the empirical data of mortality in France, the author shows that the rise in joint expectations contributed to improve standards of life significantly. In addition, the author shows that the constructed consumption equivalent measure is robust to the introduction of risk dependence, since this depends not on the level but on the variation of joint life expectation over time.