On the effects of changing mortality patterns on investment, labour and consumption under uncertainty

In this paper we extend the consumption-investment life cycle model for an uncertain-lived agent, proposed by Richard (1974), to allow for flexible labor supply. We further study the consumption, labor supply and portfolio decisions of an agent facing age-dependent mortality risk, as presented by UK actuarial life tables spanning the time period from 1951-2060 (including mortality forecasts). We find that historical changes in mortality produces significant changes in portfolio investment (more risk taking), labour (de- crease of hours) and consumption level (shift to higher level) contributing up to 5% to GDP growth during the period from 1980 until 2010.