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Too risk averse to purchase insurance?

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  • Antoine Bommier

    ()

  • François Grand

    ()

Abstract

This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there is a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for lifetime risk aversion generates a significantly smaller willingness-to-pay for annuities than the one generated by a standard time-additive model. Moreover, the calibration predicts that riskless savings finance one third of consumption, in line with empirical findings. Copyright Springer Science+Business Media New York 2014

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File URL: http://hdl.handle.net/10.1007/s11166-014-9190-3
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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 48 (2014)
Issue (Month): 2 (April)
Pages: 135-166

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Handle: RePEc:kap:jrisku:v:48:y:2014:i:2:p:135-166

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Web page: http://www.springerlink.com/link.asp?id=100299

Related research

Keywords: Annuity puzzle; Insurance demand; Bequest; Intergenerational transfers; Risk aversion; Multiplicative preferences; D11; D81; D91;

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References

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