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Consumer Confusion: The Choice of AFORE

Author

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

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.

Suggested Citation

  • Moisés J. Schwartz & Enrique E. Domínguez & Roberto Calderón-Colín, 2008. "Consumer Confusion: The Choice of AFORE," IMF Working Papers 2008/177, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/177
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    References listed on IDEAS

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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.
    2. Emma Aguila & Michael D. Hurd & Susann Rohwedder, 2014. "How Do Management Fees Affect Retirement Wealth Under Mexico’s Personal Retirement Accounts System?," Working Papers WR-1023, RAND Corporation.

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