EconPapers    
Economics at your fingertips  
 

Adverse Selection with individual- and joint-life annuities

Susanne Pech ()

No 2004-12, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: This paper includes couples on the demand side and analyses their implications on the problem of adverse selection in the annuity market. First, we examine the pooling equilibrium for individual-life annuities and show that in the presence of couples the rate of return on individuallife annuities is lower in case that couples do not have the advantage of joint consumption of "family public goods" as well as in case of a logarithmic utility function. Second, we examine the market for joint-life annuities. Due to their higher chance that only one partner survives to the retirement, couples with short-lived partners put more weight on the survivor benefit than couples with at least one longer-lived partner. This fact is used by annuity companies to separate couples according to their partners' life-expectancies. Hence, we find that only a separating equilibrium may exist. These results are obtained in a framework where couples are mandated to buy joint-life annuities and only single persons buy individual-life annuities. When relaxing this assumption by allowing couples to choose between individual- and joint-life annuities, we find that in equilibrium couples with long-lived partners buy individual-life annuities, while couples with short-lived partners buy joint-life annuities. However, couples with one long-lived and one short-lived partner may decide for either type of annuities, depending on the exogenous parameters. Accordingly, we identify two different types of equilibria.

Keywords: annuity market; uncertain lifetime; adverse selection; equilibrium (search for similar items in EconPapers)
JEL-codes: D13 D82 D91 G22 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-ias, nep-lab and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.econ.jku.at/papers/2004/wp0412.pdf (application/pdf)

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:jku:econwp:2004_12

Access Statistics for this paper

More papers in Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria Contact information at EDIRC.
Bibliographic data for series maintained by René Böheim ().

 
Page updated 2020-02-15
Handle: RePEc:jku:econwp:2004_12