| My dissertation spans the area of the economics of the life-cycle with an emphasis on applications of numerical methods to this area.;My first chapter entitled "Does it Pay to Get a Reverse Mortgage?" estimates a structural dynamic life-cycle model of consumption, housing, and mobility choice to calculate the welfare benefits of allowing retirees to cash in their home equity through a reverse mortgage. My main contributions are twofold. First, I provide a plausible explanation for the relative weakness of the demand for reverse mortgages, namely reverse mortgages introduce a new risk to their purchasers, the moving risk. Second, I use a recently developed set of tools from numerical analysis to estimate an empirical model. Specifically, these tools include the Mathematical Programming with Equilibrium Constraints (MPEC) approach, a flexible polynomial approximation, shape preservation, and the imposition of the Envelope Theorem in calculating value functions.;My second chapter "Marrying for Money" examines the financial gains from marriage. Specifically, the paper deals with marriage as an implicit insurance contract against the risk of earning loss, of disability, and of running out of money because of greater than average longevity. The main finding is that, even though economies of shared living are the dominant factor in the financial gain from marriage, the risk-sharing opportunities provided by the family can play an important role.;My third chapter "Does it Pay to Pay Off Your Mortgage?" examines whether retirees, who have enough financial assets to pay off their mortgage, should pay it off or keep it and invest. I find that those with more initial wealth are better off from paying off their mortgage, whereas those with less initial wealth are worse off. The welfare gains to the wealthy can run as high as 4 percent of their initial assets. These gains reflect the fact that the nominal mortgage interest rate exceeds the nominal return one can earn on safe bonds. This holds for those with low initial wealth, but such households are typically liquidity constrained, so paying off their mortgage comes at cost of less consumption smoothing. |
