Demand for life annuities from married couples with a bequest motive
Carlos Vidal-Melia and
Ana Lejárraga-García
Journal of Pension Economics and Finance, 2006, vol. 5, issue 2, 197-229
Abstract:
The aim of this paper is to explain the ‘annuities puzzle’ in greater depth by introducing the bequest motive. It will try to determine whether this motive really is a relevant feature influencing the demand for life annuities from married couples. With this aim in mind, we develop an optimization model of the utility provided by purchasing a life annuity with contingent survivor benefit or a joint survivor life annuity. Our model is based on that first put forward by Brown and Poterba (2000), to which we have added elements from other models, such as Friedman and Warshawsky's (1990) and Vidal and Lejárraga's (2004), which include the bequest motive. This will enable us to calculate the annuity equivalent wealth and the optimal percentage of wealth to annuitize in various contexts: the possibility of access to actuarially fair annuity markets, the inclusion of so-called market imperfections, and the assumption that couples already have part of their wealth in pre-existing life annuities. Numerical results are presented for the case of Spain. The bequest motive is found not to be a significant factor influencing the demand for annuities from couples. Indeed very few couples would be willing to purchase them once we take into account the combined effects of market imperfections, the possibility of pre-existing annuities and the bequest motive. These findings have repercussions for policy makers regulating defined contribution capitalization systems, which are complementary to defined benefit systems.
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (19)
Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)
Related works:
Working Paper: DEMAND FOR LIFE ANNUITIES FROM MARRIED COUPLES WITH A BEQUEST MOTIVE (2004) 
Working Paper: Demand for life annuities from married couples with a bequest motive 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:5:y:2006:i:02:p:197-229_00
Access Statistics for this article
More articles in Journal of Pension Economics and Finance from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().