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Adverse Selection in the Annuity Market When Profits Vary over the Time of Retirement

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  • Johann K. Brunner
  • Susanne Pech

Abstract

This study deals with a specific implication of adverse selection for annuity pricing. Varying the time path of the payoffs over the retirement periods affects the annuity demand and welfare of individuals with low and with high life expectancy in different ways. Therefore they can be separated by insurance firms through appropriate contract offers. We show that in this framework a Nash-Cournot equilibrium may not exist; if one exists, it will be a separating equilibrium. On the other hand, even if a separating equilibrium does not exist, a Wilson pooling equilibrium exists.

Suggested Citation

  • Johann K. Brunner & Susanne Pech, 2005. "Adverse Selection in the Annuity Market When Profits Vary over the Time of Retirement," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(1), pages 155-183, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200503)161:1_155:asitam_2.0.tx_2-c
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    References listed on IDEAS

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    1. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
    2. Johann K. Brunner & Susanne Pech, 2000. "Adverse selection in the annuity market when payoffs vary over the time of retirement," Economics working papers 2000-30, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Townley, Peter G. C. & Boadway, Robin W., 1988. "Social security and the failure of annuity markets," Journal of Public Economics, Elsevier, vol. 35(1), pages 75-96, February.
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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