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Adverse Selection in the Annuities Market and the Impact of Privatizing Social Security

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  • Walliser, Jan

Abstract

The observation that few Americans purchase life annuities has often been attributed to adverse selection. A still unanswered question is whether observable price increases caused by adverse selection can be generated endogenously in a life cycle model. This paper calibrates a pure life cycle model for a characteristic US cohort and reproduces three stylized facts. Adverse selection increases annuity prices by 7-10 percent; the cost of adverse selection rises with the age of the annuitant; and the cost is smaller for females than for males. Social security privatization could reduce annuity prices by between 2 and 3 percent. Copyright 2000 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 102 (2000)
Issue (Month): 3 (June)
Pages: 373-93

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Handle: RePEc:bla:scandj:v:102:y:2000:i:3:p:373-93

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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