Selection Effects in the United Kingdom Individual Annuities Market

23 Pages Posted: 13 Nov 2002

See all articles by Amy Finkelstein

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Abstract

This paper explores adverse selection in the voluntary and compulsory individual annuity markets in the United Kingdom. Two empirical regularities support standard models of adverse selection. First, annuitants are longer-lived than non-annuitants. These mortality differences are more pronounced in the voluntary than in the compulsory annuity market. We estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market. Second, the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based, in part, on private information about their mortality prospects.

Suggested Citation

Finkelstein, Amy and Poterba, James M., Selection Effects in the United Kingdom Individual Annuities Market. The Economic Journal, Vol. 112, pp. 28-50, 2002. Available at SSRN: https://ssrn.com/abstract=308898

Amy Finkelstein (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States
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617-253-1330 (Fax)

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