Too risk averse to purchase insurance?
A theoretical glance at the annuity puzzle
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Author / Producer
Date
2014-04
Publication Type
Journal Article
ETH Bibliography
yes
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OPEN ACCESS
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Abstract
This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there is a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for lifetime risk aversion generates a significantly smaller willingness-to-pay for annuities than the one generated by a standard time-additive model. Moreover, the calibration predicts that riskless savings finance one third of consumption, in line with empirical findings.
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Publication status
published
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Editor
Book title
Journal / series
Volume
48 (2)
Pages / Article No.
135 - 166
Publisher
Springer
Event
Edition / version
Methods
Software
Geographic location
Date collected
Date created
Subject
Annuity puzzle; Insurance demand; Bequest; Intergenerational Transfers; Risk aversion; Multiplicative preferences
Organisational unit
03877 - Bommier, Antoine / Bommier, Antoine
Notes
It was possible to publish this article open access thanks to a Swiss National Licence with the publisher.