Capital Accumulation and Annuities in an Adverse Selection Economy

Martin Eichenbaum and Dan Peled ()

No 2046, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper suggests that adverse selection problems in competitive annuity markets can generate quantity constrained equilibria in which some agents whose length of lifetime is uncertain find it advantageous to accumulate capital privately. This occurs despite the higher rates of return on annuities. The welfare properties of these allocations are analyzed. It is shown that the level of capital accumulation is excessive in a Paretian sense. Policies which eliminate this inefficiency are discussed.

Date: 1986-10
Note: PE
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Published as Eichenbaum, Martin S. and Dan S. Peled. "Capital Accumulation and Annuitiesin an Adverse Selection Economy," Journal of Political Economy, Vol. 95, No. 2, April 1987, pp. 334-354.
Published as In The Measurement of Saving, Investment, and Wealth, Robert Lipsey, and Helen Tice, eds. University of Chicago Press: Chicago. 1989.

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Journal Article: Capital Accumulation and Annuities in an Adverse Selection Economy (1987)
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