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The Bequest Motive And Single People’S Demand For Life Annuities

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  • CARLOS VIDAL-MELIA

    (UNIVERSITY OF VALENCIA, SPAIN)

  • ANA LEJÁRRAGA-GARCÍA

    (UNIVERSITY OF VALENCIA, SPAIN)

Abstract

The main objective of this paper is to go deeper into the “annuity puzzle” by introducing the altruistic and strategic bequest motive and determining whether this really is a relevant factor affecting the theoretical decision to purchase life annuities. With this end in view we develop an optimization model based on that first put forward by Lejárraga et al. [2002], then add to it elements from other models such as Friedman and Warshawsky’s [1990] and Jousten’s [1998 & 2001] which include the bequest motive. We also analyse welfare by calculating the equivalent wealth in different contexts: the possibility of having access to an actuarially fair life annuity or programmed withdrawal market, the incorporation of so-called market imperfections, and the inclusion of the hypothesis that the individuals already have part of their wealth in pre-existing life annuities.

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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0405005.

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Length: 24 pages
Date of creation: 17 May 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0405005

Note: Type of Document - pdf; pages: 24
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Web page: http://128.118.178.162

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Keywords: Capitalization; Pension Funds; Phased Withdrawal; Retirement; Utility.;

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  11. Fischer, Stanley, 1973. "A Life Cycle Model of Life Insurance Purchases," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(1), pages 132-52, February.
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  23. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
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  26. Carlos Vidal- Meliá & José E. Devesa- Carpio & Rosa Rodríguez- Barrera, 2002. "Assessing Administration Charges For The Affiliate In Individual Account Systems," Working Papers. Serie EC 2002-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  29. Jousten, Alain, 2001. "Life-cycle modeling of bequests and their impact on annuity valuation," Journal of Public Economics, Elsevier, vol. 79(1), pages 149-177, January.
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