(UBS Pensions Series 039) Rare Events and Annuity Market Participation

Alexander Michaelides and Paula Lopes ()

FMG Discussion Papers from Financial Markets Group

Abstract: We investigate whether a rare event (like the default of the annuity provider) can explain the annuity market participation puzzle. High risk aversion is needed to change behavior in the presence of such a disastrous shock but higher risk aversion also makes annuities more valuable. Therefore, these rare events are unlikely candidates to explain the low take-up of voluntary annuities.

Date: 2005-12
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