Annuities and individual welfare
By: [by] Thomas Davidoff, Jeffrey Brown [and] Peter Diamond
Contributors: Brown, Jeffrey P.; Diamond, Peter A.; Massachusetts Institute of Technology. Dept. of Economics
Edition: Rev.
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 03-15 [2005]; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 03-15.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Number of pages: 30
Description: Advancing annuity demand theory, we present sufficient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by Yaari (1965). We examine demand with market incompleteness, finding that positive annuitization remains optimal widely, but complete annuitization does not. How uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk. A new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization, suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases. Keywords: Annuities, annuitization, Social Security, pensions, longevity risk, insurance, standard-of-living, habit. JEL Classifications: D11, D91, E21, H55, J14, J26.
Notes: "May 7, 2003. -- Revised: March 17, 2005."

Includes bibliographical references (p. 25-28).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.