Too risk averse to purchase insurance?

Antoine Bommier and François Grand ()

Journal of Risk and Uncertainty, 2014, vol. 48, issue 2, 135-166

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. Copyright Springer Science+Business Media New York 2014

Keywords: Annuity puzzle; Insurance demand; Bequest; Intergenerational transfers; Risk aversion; Multiplicative preferences; D11; D81; D91 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:48:y:2014:i:2:p:135-166

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DOI: 10.1007/s11166-014-9190-3

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