Uncertainty resolution and the timing of annuity purchases

Brugiavini, Agar

doi:10.1016/0047-2727(93)90059-3

Cited by 124 publications

(82 citation statements)

References 8 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…A third possibility is that people in poor health try to avoid buying annuities, because they do not expect to live very long (Brown (2001), Finkelstein & Poterba (2002)). Their findings confirm the predictions from Brugiavini's (1993) theoretical model in which the health status of the individual follows a stochastic model, the parameters of which are known only to the individual.…”

supporting

confidence: 79%

Pensionmetrics 2: stochastic pension plan design during the distribution phase

Blake

Cairns

Dowd

2003

Insurance: Mathematics and Economics

135

134

View full text Add to dashboard Cite

We consider the choices available to a defined contribution (DC) pension plan member at the time of retirement for conversion of his pension fund into a stream of retirement income. In particular, we compare the purchase at retirement age of a conventional life annuity (i.e., a bond-based investment) with distribution programmes involving differing exposures to equities during retirement. The residual fund at the time of the plan member's death can either be bequested to his estate or revert to the life office in exchange for the payment of survival credits while alive.The most important decision, in terms of cost to the plan member, is the level of equity investment. We also find that the optimal age to annuitise depends on the bequest utility and the investment performance of the fund during retirement.

show abstract

supporting

confidence: 79%

Pensionmetrics 2: stochastic pension plan design during the distribution phase

Blake

Cairns

Dowd

2003

Insurance: Mathematics and Economics

135

134

View full text Add to dashboard Cite

show abstract

“…In principle, the best way to avoid adverse selection is by contracting before the information becomes known, as is shown by Brugiavini [1993] and Hirshleifer [1971]. However, a closer examination shows that the quantitative impact of adverse selection on insureds' welfare is rather limited.…”

Section: Resultsmentioning

confidence: 99%

“…The first order conditions for the optimal consumption allocation in this case are: Brugiavini [1993] demonstrates that the precommitment contract is superior to any other contract. This is because the precommitment contract provides insurance against both the uncertainty of the insured's type and her longevity.…”

Section: Allocation 3: No Access To the Insurance Marketmentioning

confidence: 99%

Adverse selection and the market for annuities

Palmon

Spivak

2007

Geneva Risk Insur Rev

View full text Add to dashboard Cite

Adverse selection is often blamed for the malfunctioning of the annuities market. We simulate the impact of adverse selection on the consumption allocation of annuitants under alternative parameter values, and explore the resulting welfare implications. We show that, for most parameter values, the welfare losses associated with equilibriums that are subject to adverse selection correspond to a loss of wealth of around one percent in a first-best equilibrium. These losses are smaller than the corresponding losses associated with equilibriums with no access to an annuity market by an order of magnitude of ten. The existence of substitutes for annuities such as a bequest motive or a social security system intensifies the adverse selection but reduces its welfare impact.

show abstract

“…Moreover, we assume that there is perfect competition among the annuity companies and that they cannot monitor whether consumers buy annuities from other insurance companies, which seems to be a reasonable assumption frequently made for the annuity market (see e.g. Pauly 1974, Abel 1986, Brugiavini 1993, Walliser 2000. It follows that in equilibrium for each type of contract only one price, that is one payout q 1 , q 2 , r 2 , resp., per unit of annuity, can exist for each period t = 1,2.…”

Section: Adverse Selection With Two Groups Of Individualsmentioning

confidence: 99%

Adverse selection in the annuity market with sequential and simultaneous insurance demand

Brunner¹,

Pech²

2006

Geneva Risk Insur Rev

View full text Add to dashboard Cite

This paper investigates the effect of adverse selection on the private annuity market in a model with two periods of retirement. In order to introduce the existence of limited-time pension insurance, we assume that for each period of retirement separate contracts can be purchased. Demand for the two periods can be decided either sequentially or simultaneously. We show that different risk-groups prefer different types of contracts, and that only the sequential contracts, which are favourable for the long-living individuals, represent an equilibrium.JEL Classification: D82, D91, G22.

show abstract

Uncertainty resolution and the timing of annuity purchases

Cited by 124 publications

References 8 publications

Pensionmetrics 2: stochastic pension plan design during the distribution phase

Pensionmetrics 2: stochastic pension plan design during the distribution phase

Adverse selection and the market for annuities

Adverse selection in the annuity market with sequential and simultaneous insurance demand

Contact Info

Product

Resources

About