The demand for enhanced annuities
This paper examines market reaction to the introduction of enhanced annuities in a market for deferred standard annuities. The previous literature shows that individuals can try to avoid risk classification by contracting a standard annuity earlier in their life. This paper offers a new perspective to the timing of the annuity purchase under the assumption that individuals already have an idea about their future risk type when young which becomes clearer over time. It shows that enhanced annuities can crowd out earlier standard annuities completely if the individuals have incomplete knowledge of their future risk type. However, if individuals are sufficiently risk averse and there is a sufficiently high proportion of low risks in the population, both products can remain in the market where lower risk types buy enhanced annuities while the higher risks stick to the early standard annuities. The paper identifies the equilibrium candidate with both annuity types to be Pareto-superior and the unique equilibrium.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 96 (2012)
Issue (Month): 11 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/505578|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, .
"New Evidence on the Money's Worth of Individual Annuities,"
Pension Research Council Working Papers
97-9, Wharton School Pension Research Council, University of Pennsylvania.
- Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 1997. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
- Eichenbaum, Martin S & Peled, Dan, 1987.
"Capital Accumulation and Annuities in an Adverse Selection Economy,"
Journal of Political Economy,
University of Chicago Press, vol. 95(2), pages 334-54, April.
- Martin S. Eichenbaum & Dan S. Peled, 1986. "Capital Accumulation and Annuities in an Adverse Selection Economy," NBER Working Papers 2046, National Bureau of Economic Research, Inc.
- Eytan Sheshinski, 2007.
"Optimum and Risk-Class Pricing of Annuities,"
Royal Economic Society, vol. 117(516), pages 240-251, 01.
- Eytan Sheshinski, 2001. "Optimum and Risk-Class Pricing of Annuities," Discussion Paper Series dp327, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
- Eytan Sheshinski, 2003. "Optimum and Risk-Class Pricing of Annuities," CESifo Working Paper Series 873, CESifo Group Munich.
- Benjamin M. Friedman & Mark J. Warshawsky, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 135-154.
- Mathias Kifmann, 2008.
"The Design of Pension Pay Out Options when the Health Status during Retirement is Uncertain,"
CESifo Working Paper Series
2211, CESifo Group Munich.
- Mathias Kifmann, 2010. "The Design of Pension Pay Out Options When the Health Status during Retirement Is Uncertain," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 127-149, 02.
- Amy Finkelstein & James Poterba, 2004.
"Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market,"
Journal of Political Economy,
University of Chicago Press, vol. 112(1), pages 183-208, February.
- Amy Finkelstein & James Poterba, 2000. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," NBER Working Papers 8045, National Bureau of Economic Research, Inc.
- Jeffrey R. Brown, 1999.
"Private Pensions, Mortality Risk, and the Decision to Annuitize,"
NBER Working Papers
7191, National Bureau of Economic Research, Inc.
- Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
- Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005.
"Annuities and Individual Welfare,"
American Economic Review,
American Economic Association, vol. 95(5), pages 1573-1590, December.
- Oded Palmon & Avia Spivak, 2007. "Adverse selection and the market for annuities," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 37-59, June.
- Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
- Abel, Andrew B, 1986.
"Capital Accumulation and Uncertain Lifetimes with Adverse Selection,"
Econometric Society, vol. 54(5), pages 1079-97, September.
- Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
- Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:96:y:2012:i:11:p:973-980. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.