2006 年 36 巻 4 号 p. 921-930
This paper proves that survival insurance has an important function which helps to attain optimal asset pricing (reflecting fundamental corporate values). We present two models for comparisons: one with insurance and the other without.
Survival insurance in the Blanchard(1985) model is a life-long annuity scheme which puts up one's residual estate after death as collateral. The function of insurance assumed is to raise the utility level through annuity payment to cover the stochastic risk of death. This compensatory payment is made possible because the insurance scheme enables the deceased individuals' estate to flow back to the survivors. Without insurance, the residual financial estate does not flow back to the survivors. It becomes a hoarded asset. Hoarded assets unable to be used in the real sector of the economy prevent both consumption and investment from attaining optimal levels.
The paper shows that stock prices without compensatory payment of insurance tend to rise as stock earnings rates fall. Rising stock prices beyond their theoretical values are not optimum. With survival insurance the stock market reflects fundamental values since the deceased's financial estate readily flows back into the real sector, restoring optimal asset pricing that sub-optimal capital accumulation fails to achieve.
JEL classification: E13, E31, E44, G12, G22