Please use this identifier to cite or link to this item:
http://hdl.handle.net/10397/105987
Title: | A common thread linking the design of guarantee and nonescalating payments of public annuities | Authors: | Lau, SHP Zhang, Q |
Issue Date: | Sep-2023 | Source: | Journal of risk and insurance, Sept 2023, v. 90, no. 3, p. 703-742 | Abstract: | Motivated by recent experiences in economies adopting the defined-contribution pension system, we study public annuities in the presence of survival probability heterogeneity. It is found that the difference of annuitization-weighted and unweighted averages of survival probabilities is a useful measure of the severity of adverse selection. We then examine public annuities with a guarantee feature which bundles annuity income and bequeathable wealth components. We show that when the heterogeneity in survival probability is limited, the magnitude of guarantee proportion is irrelevant. On the other hand, an increase in the guarantee proportion mitigates adverse selection when the extent of heterogeneity is sufficiently large, because the share of annuity purchase by retirees with lower (resp., higher) survival probabilities is increased (resp., decreased). We also obtain a similar set of results for public annuities with nonescalating payments. The results have useful implications regarding the design of public annuities. | Keywords: | Asymmetric information Guarantee element Nonescalating payments Public annuity Severity of adverse selection |
Publisher: | Wiley-Blackwell Publishing, Inc. | Journal: | Journal of risk and insurance | ISSN: | 0022-4367 | EISSN: | 1539-6975 | DOI: | 10.1111/jori.12419 | Rights: | © 2023 The Authors. Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association. This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or adaptations are made. The following publication Lau, S.-H., & Zhang, Q. (2023). A common thread linking the design of guarantee and nonescalating payments of public annuities. Journal of Risk and Insurance, 90(3), 703–742 is avaialble at https://doi.org/10.1111/jori.12419. |
Appears in Collections: | Journal/Magazine Article |
Files in This Item:
File | Description | Size | Format | |
---|---|---|---|---|
Lau_Common_Thread_Linking.pdf | 3.29 MB | Adobe PDF | View/Open |
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.