Capital Accumulation and Annuities in an Adverse Selection Economy

35 Pages Posted: 27 Apr 2000 Last revised: 4 Feb 2021

See all articles by Martin Eichenbaum

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Dan Peled

University of Haifa - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 1986

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.

Suggested Citation

Eichenbaum, Martin and Peled, Dan, Capital Accumulation and Annuities in an Adverse Selection Economy (October 1986). NBER Working Paper No. w2046, Available at SSRN: https://ssrn.com/abstract=227260

Martin Eichenbaum (Contact Author)

Northwestern University ( email )

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Dan Peled

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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