Economic Growth and Longevity Risk with Adverse Selection

Ben Heijdra () and Laurie Reijnders ()

De Economist, 2013, vol. 161, issue 1, 69-97

Abstract: We study the implications of adverse selection in annuity markets in a general-equilibrium model of the closed economy. Agents differ in their health type and invest their assets in the annuity market. Without informational asymmetries each agent would obtain an actuarially fair insurance. If the individual health types and total annuity purchases are unobservable to the annuity firms then there exists a pooling equilibrium in which all agents annuitize at a common rate. At this pooling rate unhealthy agents would eventually like to borrow but this would reveal their true health type. As a consequence, they rationally drop out of the market. Surprisingly, the welfare and growth effects of the informational asymmetries are rather small. Copyright Springer Science+Business Media New York 2013

Keywords: Annuity markets; Adverse selection; Endogenous growth; Overlapping generations; Demography; D52; D91; E10; J10 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Economic Growth and Longevity Risk with Adverse Selection (2009)
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DOI: 10.1007/s10645-012-9199-4

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