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Adverse selection in the annuity market with sequential and simultaneous insurance demand

  • Johann Brunner

    ()

  • Susanne Pech

    ()

This paper investigates the effect of adverse selection on the private annuity market in a model with two periods of retirement and two types of individuals, who differ in their life expectancy. In order to introduce the existence of time-limited pension insurance, we consider a model where for each period of retirement separate contracts can be purchased. Demand for the two periods can be decided sequentially or simultaneously. We show that only a situation where all risk types choose sequential contracts is an equilibrium and that this outcome is favourable for the long-living, but is unfavourable for the short-living individuals. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s10713-006-0558-4
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Article provided by Springer in its journal THE GENEVA RISK AND INSURANCE REVIEW.

Volume (Year): 31 (2006)
Issue (Month): 2 (December)
Pages: 111-146

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Handle: RePEc:kap:geneva:v:31:y:2006:i:2:p:111-146
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102897

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  1. 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.
  2. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  3. Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  4. Peter Townley & Robin Boadway, 1986. "Social Security and the Failure of Annuity Markets," Working Papers 652, Queen's University, Department of Economics.
  5. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  6. Johann K. Brunner & Susanne Pech, 2000. "Adverse selection in the annuity market when payoffs vary over the time of retirement," Economics working papers 2000-30, Department of Economics, Johannes Kepler University Linz, Austria.
  7. Susanne Pech, 2004. "Tax Incentives for Private Life Annuities and the Social Security Reform: Effects on Consumption and on Adverse Selection," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(4), pages 556-, December.
  8. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  9. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
  10. James M. Poterba, 1997. "The History of Annuities in the United States," NBER Working Papers 6001, National Bureau of Economic Research, Inc.
  11. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
  12. Walliser, Jan, 2000. " Adverse Selection in the Annuities Market and the Impact of Privatizing Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 373-93, June.
  13. 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.
  14. Amy Finkelstein & James Poterba, 2002. "Selection Effects in the United Kingdom Individual Annuities Market," Economic Journal, Royal Economic Society, vol. 112(476), pages 28-50, January.
  15. 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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