Abstract
This paper investigates the characterization and sensitivity analysis of the life-cycle model of saving with uncertain lifetime and borrowing constraint first formulated by Yaari [Review of Economic Studies 32 (1965) 137–150]. Under mild conditions, terminal wealth depletion is shown to be an intrinsic property of the model. A three-step procedure for the sensitivity analysis 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.
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