When information on longevity (survival functions) is unknown early in life, individuals have an interest to insure themselves against future ’risk-class’ classification. Accordingly, the First-Best typically involves transfers across states of nature. Competitive equilibrium cannot provide such transfers if insurance firms are unable to precommit their customers. On the other hand, public insurance plans that do not distinguish between ’risk-class’ realizations are also inefficient. It is impossible, a-priori, to rank these alternatives from a welfare point of view.
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Paper provided by Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem in its series Discussion Paper Series with number
dp327.
Find related papers by JEL classification: D8 - Microeconomics - - Information, Knowledge, and Uncertainty G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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