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Consumer Confusion

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Author Info

  • Moisés J. Schwartz
  • Enrique E. Domínguez
  • Roberto Calderón-Colín
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    Abstract

    This paper was prepared for the World Bank 4th Annual Contractual Savings Conference (Washington DC, April 2008) co-organized by Gregorio Impavido (gimpavido@imf.org). The article shows that account transfers among pension administrators in Mexico barely respond to price or return considerations and in general has not improved the consumer''s pension balance. Instead of strengthening competition through lower fees and higher returns for the consumer, AFORE switching has so far undermined the system and resulted in the destruction of value. Moreover, "noisy" evaluations of the product by the consumer tend to undermine the power of competition. Thus, an increased number of pension fund managers has not provided a more competitive environment. The theoretical framework allows for the estimation of "noise" and mark-ups in the AFORE industry. As the number of AFOREs increases, the mark-up diminishes at a very slow rate. This implies that more participants in the industry will hardly affect prices.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/177.

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    Length: 61
    Date of creation: 01 Jul 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/177

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    Related research

    Keywords: Pension supervision; pension; pension fund; pension fund managers; retirement; pension funds; pension fund manager; pension systems; pension account; pension administrators; individual accounts; retirement age; pension fund administrators; savings for retirement; pensions; domestic savings; pension system; pension reform; age of retirement; retirement savings; supervisory authority; retirement system; pension fund administrator; pension fund management; private pension fund; retirement funds; net return; pension system reform; future pension; retirement saving; individual data; annual returns; pension schemes; lower pension; choice of pension fund; capital markets; retirement plans; individual accounts systems; retirement fund; pay-as-you-go system; labor force; pension savings; insurance company; retirement plan; contractual savings; net returns; pay-as-you-go systems; funded systems;

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    References

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    1. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-42, March.
    2. Xavier Gabaix & David Laibson & Hongyi Li, 2005. "Extreme Value Theory and the Effects of Competition on Profits," Levine's Bibliography 784828000000000656, UCLA Department of Economics.
    3. Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
    4. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
    5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    6. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    7. Esther Duflo & Emmanuel Saez, 2003. "The Role Of Information And Social Interactions In Retirement Plan Decisions: Evidence From A Randomized Experiment," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 815-842, August.
    8. Rodrigo Cerda, 2006. "Movilidad en la Cartera de Cotizantes por AFP: La Importancia de ser Primero en Rentabilidad," Documentos de Trabajo 309, Instituto de Economia. Pontificia Universidad Católica de Chile..
    9. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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    Cited by:
    1. Emma Aguila & Michael D. Hurd & Susann Rohwedder, 2008. "Pension Reform in Mexico: The Evolution of Pension Fund Management Fees and their Effect on Pension Balances," Working Papers wp196, University of Michigan, Michigan Retirement Research Center.

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