Annuities and Aggregate Mortality Risk
AbstractThis paper explores the effect of aggregate mortality risk on the pricing of annuities. It uses a two-period OLG model; in the first period, ‘young’ people have a zero probability of death, and in the second period ‘old’ people face an initially unknown risk of death. Old people can either carry their aggregate mortality risk, or buy annuities which are sold by young people. A market-clearing price for such annuities is established. The alternative where annuities are purchased from the government is also explored, and this is found to dominate the private market solution in welfare terms.
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Bibliographic InfoPaper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 302.
Date of creation: Jan 2008
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