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Retirement Policy and Annuity Market Equilibria: Evidence from Chile

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  • Gastón Illanes
  • Manisha Padi

Abstract

Retirement policy has indirect effects on its beneficiaries, through the “crowd-out” or “crowd-in” of insurance markets. We study how retirement policy in Chile, which limits the drawdown of retirement assets but otherwise does not provide or require fixed income in retirement, results in more than 60% of eligible retirees purchasing private annuities at low prices. We estimate a demand model to show that replacing this voluntary policy with partial mandatory annuitization and removing limits on drawdowns causes the private annuity market to partially unravel. Under our model, this reform leads to a welfare increase equivalent to US$4,000 of additional pension savings on average, but welfare effects are heterogenous and many retirees would be harmed due to the higher prices of private annuities. Our results highlight the importance of considering the impact of policy reforms on the equilibria of related markets.

Suggested Citation

  • Gastón Illanes & Manisha Padi, 2019. "Retirement Policy and Annuity Market Equilibria: Evidence from Chile," NBER Working Papers 26285, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26285
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    References listed on IDEAS

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    Cited by:

    1. Jackson Bunting, 2022. "Continuous permanent unobserved heterogeneity in dynamic discrete choice models," Papers 2202.03960, arXiv.org, revised Feb 2024.
    2. Bello, Piera, 2023. "Gender-based price discrimination in the annuity market: Evidence from Chile," European Economic Review, Elsevier, vol. 151(C).
    3. Piera Bello, 2020. "Gender-based price discrimination in the annuity market: Evidence from Chile," IdEP Economic Papers 2002, USI Università della Svizzera italiana.

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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