 A common thread linking the design of guarantee and nonescalating payments of public annuitiesSau‐Him Paul Lau and Qilin Zhang Journal of Risk & Insurance, 2023, vol. 90, issue 3, 703-742 Abstract: Motivated by recent experiences in economies adopting the defined‐contribution pension system, we study public annuities in the presence of survival probability heterogeneity. It is found that the difference of annuitization‐weighted and unweighted averages of survival probabilities is a useful measure of the severity of adverse selection. We then examine public annuities with a guarantee feature which bundles annuity income and bequeathable wealth components. We show that when the heterogeneity in survival probability is limited, the magnitude of guarantee proportion is irrelevant. On the other hand, an increase in the guarantee proportion mitigates adverse selection when the extent of heterogeneity is sufficiently large, because the share of annuity purchase by retirees with lower (resp., higher) survival probabilities is increased (resp., decreased). We also obtain a similar set of results for public annuities with nonescalating payments. The results have useful implications regarding the design of public annuities. Date: 2023 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:90:y:2023:i:3:p:703-742 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Risk & Insurance is currently edited by Joan T. Schmit More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC. |
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