|PREFAC|**Table of Contents**<br>E...................................................................................................................v|
|---|---|
|GLOSSA|RY ..............................................................................................................vi|
|1.<br>INT|RODUCTION AND HYPOTHESES..........................................................1|
|2.<br>DET|ERMINANTS OF ANNUITY COSTS ......................................................3|
|2.1|Modigliani-Miller and the Expected Elasticity ........................................4|
|2.2|The Case of Chile .....................................................................................5|
|3.<br>THE|DATA ........................................................................................................6|
|3.1|The Original Data.....................................................................................6|
|3.2|Annuity Payment Profile ..........................................................................6|
|3.3|Annuity Cost Behavior.............................................................................7|
|3.4|Causality Relations...................................................................................7|
|4.<br>ME|THODOLOGY AND RESULTS.................................................................7|
|4.1|Long-Term Elasticity................................................................................8|
|4.2|Structural Changes....................................................................................8|
|4.3|Robustness Checks ...................................................................................8|
||4.3.1 Unadjusted Annuity Rates..............................................................9|
||4.3.2 Relevant Market Interest Rate........................................................9|
|5.<br>INT|ERPRETATION ..........................................................................................9|
|5.1|Commission Levels ................................................................................10|
|5.2|Commissions and Adjusted Annuity Interest Rates ...............................10|
|5.3|Changes through Time ...........................................................................11|
|5.4|Other Evidence .......................................................................................11|
|6.<br>SU|MMARY AND CONCLUSIONS...............................................................12|
|REFERE|NCES .........................................................................................................14|
|FIGURE|S:|
|Figure 1:|Annuity Costs, Market Rates, and Interest Rates.....................................15|
|Figure 2:|Annuity Rates (TV) and Adjusted Annuity Rates (TVA)........................16|
|<br>Figure 3:|<br>Annuity Payment Profile..........................................................................17|
|Figure 4:|Estimated Elasticity of Adjusted and Unadjusted Annuity Rates to<br>Changes in the Reference Risk-free Rate.................................................18|
|Figure 5:|Estimated Monthly Annuity Cost and Internal Rates of Return ..............19|
|Figure 6:|Relationship between Adjusted Annuity Rates and Commissions ..........20|

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