Adverse selection in tontines

Thorsten Moenig () and Nan Zhu ()
Additional contact information
Thorsten Moenig: Fox School of Business, Temple University
Nan Zhu: Smeal College of Business, Pennsylvania State University

The Geneva Risk and Insurance Review, 2025, vol. 50, issue 1, No 2, 6-38

Abstract: Abstract Several recent studies have cited the theoretical work of Valdez et al. [Insur: Math Econ 39(2):251–266, 2006] as evidence that there is less adverse selection in tontine-style products than in conventional life annuities. We argue that the modeling work and results of Valdez et al. [Insur: Math Econ 39(2):251–266, 2006] do not unconditionally support such a claim. Conducting our own analyses structured in a similar way but focusing on the relative instead of absolute change in annuity vs. tontine investments, we find that an individual with private information about their own survival prospect can potentially adversely select against tontines at the same, or even higher levels than against annuities. Our results suggest that the investor’s relative risk aversion is the driving factor of the relative susceptibility of the two products to adverse selection.

Keywords: Tontine; Life annuity; Retirement savings; Adverse selection; D14; D81; D82; G22 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s10713-024-00104-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:50:y:2025:i:1:d:10.1057_s10713-024-00104-w

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

DOI: 10.1057/s10713-024-00104-w

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().