PRECAUTIONARY SAVINGS AND THE DEMAND FOR ANNUITIES

Michel Strawczynski

No 1996.05, Bank of Israel Working Papers from Bank of Israel

Abstract: Two well­known results in the ifeld of annuities are: (i) egoistic agents should annuitize all their wealth and (ii) altruistic agents should segment their savings between riskless bonds (for bequests) and annuities (for consumption). Given these two results, it is puzzling to note that private annuity markets are thin. In this paper we show that in the presence of precautionary savings, altruistic agents reduce the demand for annuities. Thus, the lack of private annuity markets becomes less than a puzzle, and maybe explained by the existence of a low demand, which is satisfied by existing pension arrangements.

Pages: 29 pages
Date: 1996-06
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