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Note on the Optimum Pricing of Annuities

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  • Eytan Sheshinski

Abstract

In a perfectly competitive market for annuities with full information, the price of annuities is equal to individuals’ (discounted) survival probabilities. That is, prices are actuarially fair. In contrast, the pricing implicit in social security systems invariably allows for cross subsidization between different risk groups (males/females). We examine the utilitarian approach to the optimum pricing of annuities and show how the solution depends on the joint distribution of survival probailities and incomes in the population.

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  • Eytan Sheshinski, 2003. "Note on the Optimum Pricing of Annuities," CESifo Working Paper Series 884, CESifo.
    • Handle: RePEc:ces:ceswps:_884
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    References listed on IDEAS

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    1. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
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