The performance of a market for annuity contracts depends on the interaction between retirees and strategic life insurance companies with  private information about their costs. We model this interaction using multi-stage and multi-attribute auctions where a retiree--auctioneer--maximizes herexpected present discounted utility . We estimate the model parameters using rich administrative data from Chile and find that retirees with low savings value firms' risk-ratings the most. The estimates also suggest that almost half the retirees who choose an annuity do not value bequest, and firms are more likely to have low annuitization cost for retirees in the top two savings deciles. Counterfactuals show that under the current mechanism, private information about costs harms only these high savers . Implementing English auctionsand prohibiting the use of risk-ratings lead to higher pensions , but only for these high savers .
In this paper, we use rich administrative data to study a market system for annuity contracts in Chile. To this end, we develop a model of demand and supply of annuities using discrete choice and multi-attribute auctions where life insurance companies with different risk ratings and private information about their annuitization costs compete for savings of risk-averse retirees by offering them personalized pensions. We find that (1) retirees' preferences for firms' risk ratings decrease with their savings, (2) almost half of the retirees who choose annuities do not value bequests, (3) information processing costs are larger for low savers and for those who receive advise from sales-agent, and (4) firms are more likely to have lower annuitization costs for the top 40\% savers. Counterfactuals suggest that information asymmetry hurts these 40\% savers the most, and replacing the current mechanism with standard English auctions and "shutting-down" risk ratings increase pensions for everyone. But the increase is negligible for most, except for these top 40\% savers, with little effect on welfare .
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The performance of a market
In this paper, we use rich administrative data to study a market system
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depends on the interaction between retirees and strategic
in Chile. To this end, we develop a model of demand and supply of annuities using discrete choice and multi-attribute auctions where
A
different risk ratings and
D
costs. We model this interaction using multi-stage and multi-attribute auctions where a retiree--auctioneer--maximizes her
D
expected present discounted utility
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. We estimate the model parameters using rich administrative data from Chile and find that retirees with low savings value firms' risk-ratings the most. The estimates also suggest that almost half
annuitization costs compete for savings of risk-averse retirees by offering them personalized pensions. We find that (1) retirees' preferences for firms' risk ratings decrease with their savings, (2) almost half of
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an annuity
annuities
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bequest, and
bequests, (3) information processing costs are larger for low savers and for those who receive advise from sales-agent, and (4)
D
low annuitization cost for retirees in the top two savings deciles. Counterfactuals show that under the current mechanism, private information about costs harms only these high savers . Implementing English auctions
D
and
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prohibiting the use of risk-ratings lead to higher pensions , but only for these high savers
lower annuitization costs for the top 40\% savers. Counterfactuals suggest that information asymmetry hurts these 40\% savers the most, and replacing the current mechanism with standard English auctions and "shutting-down" risk ratings increase pensions for everyone. But the increase is negligible for most, except for these top 40\% savers, with little effect on welfare