Adverse Selection in the Annuity Market When Payoffs Vary Over the Time of Retirement

CESifo Working Paper Series No. 412

23 Pages Posted: 21 Mar 2001

See all articles by Johann K. Brunner

Johann K. Brunner

University of Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Susanne Pech

Johannes Kepler University Linz - Department of Economics

Date Written: January 2001

Abstract

This paper investigates the effect of adverse selection and price competition on the private annuity market in a model with two retirement periods. In this framework annuity companies can offer contracts with different payoffs over the periods of retirement. Varying the time structure of the payoffs affects annuity demand and welfare of individuals with low and high life expectancy in different ways. By this, annuity purchasers can be separated according to their survival probabilities. Our main finding is that a Nash-Cournot equilibrium may not exist; if one exists, it will be a separating equilibrium. On the other hand, even if a separating equilibrium does not exist, a Wilson pooling equilibrium exists.

JEL Classification: D82, D91, G22

Suggested Citation

Brunner, Johann K. and Pech, Susanne, Adverse Selection in the Annuity Market When Payoffs Vary Over the Time of Retirement (January 2001). CESifo Working Paper Series No. 412, Available at SSRN: https://ssrn.com/abstract=263121 or http://dx.doi.org/10.2139/ssrn.263121

Johann K. Brunner (Contact Author)

University of Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz
Austria
(43 732) 2468 8248 (Phone)
(43 732) 2468 9821 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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HOME PAGE: http://www.cesifo.de

Susanne Pech

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria

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