Too risk averse to purchase insurance?

Antoine Bommier and François Le Grand
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Antoine Bommier: ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]
François Le Grand: EM - EMLyon Business School

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Abstract: This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there is a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for lifetime risk aversion generates a significantly smaller willingness-to-pay for annuities than the one generated by a standard time-additive model. Moreover, the calibration predicts that riskless savings finance one third of consumption, in line with empirical findings.

Date: 2014-04-01
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Citations: View citations in EconPapers (9)

Published in Journal of Risk and Uncertainty, 2014, 48 (2), 135-166 p. ⟨10.1007/s11166-014-9190-3⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02313181

DOI: 10.1007/s11166-014-9190-3

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