Auctioning Annuities

Gaurab Aryal (), Eduardo Fajnzylber, Maria Gabrielli and Manuel Willington
Additional contact information
Eduardo Fajnzylber: Universidad Adolfo Ibáñez

No 29, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We use data on annuities to study and evaluate an imperfectly competitive market where firms have private information about their (annuitization) costs. Our data is from Chile, where the market is structured as first-price-auction-followed-by-bargaining, and where each retiree chooses a firm and an annuity contract to maximize her expected present discounted utility. We find that retirees with low savings have the highest in- formation processing cost, and they also care about firms' risk-ratings the most. Furthermore, while almost 50% of retirees reveal that they do not value leaving bequests, the rest have heterogeneous preference for bequest that, on average, increases with their savings. On the supply side, we find that firms' annuitization costs vary across retirees, and the average costs increase with retirees’ savings. If these costs were commonly known then the pensions would increase for everyone, but the increment would be substantial only for the high savers. Likewise, if we simplify the current pricing mechanism by implementing English auctions and "shutting down" the risk-ratings, then the pensions would increase, but again, mostly for the high savers.

Keywords: Annuity; Auctions; Mortality; Annuitization; Costs (search for similar items in EconPapers)
JEL-codes: C57 D14 D44 D91 J26 L13 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-11
New Economics Papers: this item is included in nep-des and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://drive.google.com/file/d/1CusTLL6pZ7Viz5z4sgluGDk31gH6-bpG/view (application/pdf)

Related works:
Working Paper: Auctioning Annuities (2021)
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:aoz:wpaper:29

Access Statistics for this paper

More papers in Working Papers from Red Nacional de Investigadores en Economía (RedNIE) Contact information at EDIRC.
Bibliographic data for series maintained by Laura Inés D Amato ().