Actuarial fairness and social welfare in mixed-cohort tontines

An Chen and Manuel Rach

Insurance: Mathematics and Economics, 2023, vol. 111, issue C, 214-229

Abstract: We study actuarial fairness in tontines with heterogeneous cohorts. For a given tontine, we show that both collective and individual actuarial fairness can be achieved. While it is impossible to design a tontine scheme with mixed cohorts that is optimal (utility-maximizing) for each single cohort (Milevsky and Salisbury (2016), Chen et al. (2021d)), we design a socially optimal tontine that maximizes the collective's expected utility which is characterized through a weighted sum of individual utility functions. In particular, we compare the resulting collectively optimal tontine to existing schemes in the literature, and identify similarities and differences as well as potential (dis-)advantages.

Keywords: Tontine; Actuarial fairness; Participation rates; Age heterogeneity; Risk aversion (search for similar items in EconPapers)
JEL-codes: G22 G52 H31 J32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:111:y:2023:i:c:p:214-229

DOI: 10.1016/j.insmatheco.2023.05.002

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