Cohort mortality risk or adverse selection in annuity markets?

Research output: Contribution to journalArticle (Academic Journal)peer-review

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Abstract

We show that tests for adverse selection in annuity markets using prices are not identified. Within the UK annuity market, different annuity products create the potential for a Rothschild-Stiglitz separating equilibrium as different risk types could choose different annuities. Empirical analyses using the “money's worth” suggest that prices are indeed consistent with this explanation. However, we show that this pattern of annuity prices would also result from the actions of regulated annuity providers who must reserve against cohort mortality risk. Annuity products that might attract different consumer risk types also have different risks for the provider.
Original languageEnglish
Pages (from-to)68-81
Number of pages14
JournalJournal of Public Economics
Volume141
Early online date5 Jul 2016
DOIs
Publication statusPublished - Sept 2016

Research Groups and Themes

  • AF Financial Markets

Keywords

  • Adverse selection
  • Insurance markets
  • Annuities

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