Working Paper: NBER ID: w2046
Authors: Martin S. Eichenbaum; Dan Peled
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.
Keywords: Adverse Selection; Annuities; Capital Accumulation; Welfare Economics
JEL Codes: D82; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adverse Selection (D82) | Quantity Constraints (C69) |
| Quantity Constraints (C69) | Accumulation of Capital Privately (P12) |
| Adverse Selection (D82) | Accumulation of Capital Privately (P12) |
| Adverse Selection (D82) | Inefficiencies in the Market (D61) |
| Government Intervention (L59) | Improvement in Welfare (D60) |