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Economic Growth and Longevity Risk with Adverse Selection

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  • Ben Heijdra

    ()

  • Laurie Reijnders

    ()

Abstract

We study the implications of adverse selection in annuity markets in a general-equilibrium model of the closed economy. Agents differ in their health type and invest their assets in the annuity market. Without informational asymmetries each agent would obtain an actuarially fair insurance. If the individual health types and total annuity purchases are unobservable to the annuity firms then there exists a pooling equilibrium in which all agents annuitize at a common rate. At this pooling rate unhealthy agents would eventually like to borrow but this would reveal their true health type. As a consequence, they rationally drop out of the market. Surprisingly, the welfare and growth effects of the informational asymmetries are rather small. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal De Economist.

Volume (Year): 161 (2013)
Issue (Month): 1 (March)
Pages: 69-97

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Handle: RePEc:kap:decono:v:161:y:2013:i:1:p:69-97

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Web page: http://www.springerlink.com/link.asp?id=100260

Related research

Keywords: Annuity markets; Adverse selection; Endogenous growth; Overlapping generations; Demography; D52; D91; E10; J10;

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References

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Citations

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Cited by:
  1. Ben Heijdra & Jochen Mierau, 2011. "The Individual Life Cycle and Economic Growth: An Essay on Demographic Macroeconomics," De Economist, Springer, vol. 159(1), pages 63-87, March.
  2. Shuyun May Li, Solmaz Moslehi, Siew Ling Yew, 2012. "Public-Private Mix of Health Expenditure: A Political Economy Approach and A Quantitative Exercise," Department of Economics - Working Papers Series 1157, The University of Melbourne.
  3. Ben Heijdra & Laurie Reijnders, 2012. "Adverse Selection in Private Annuity Markets and the Role of Mandatory Social Annuitization," De Economist, Springer, vol. 160(3), pages 311-337, September.

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