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 costscompete 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 .
We propose and estimate a model of demand and supply of annuities to study a privatized market for annuities . To this end, we use rich data from Chile, where annuities are sold via a two-stage process: first-price auctions followed by bargaining. Firms have private information about their costs, and retirees have heterogeneous preferences for bequest and firms' risk rating . We find that retirees with low savings value firms' risk ratings more than others, and approximately 40\% do not value bequests . Counterfactuals suggest that using simpler English auctions increases pensions but mainly for those in the top four savings deciles .
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In this paper, we use rich administrative data
We propose and estimate a model of demand and supply of annuities
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market system for annuity contracts in Chile
privatized market for annuities
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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
use rich data from Chile, where annuities are sold via a two-stage process: first-price auctions followed by bargaining. Firms have
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annuitization costscompete for savings of risk-averse retirees by offering them personalized pensions
costs, and retirees have heterogeneous preferences for bequest and firms' risk rating
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(1) retirees ' preferences for
retirees with low savings value
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decrease with their savings, (2) almost half of the retirees who choose annuities
more than others, and approximately 40\%
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, (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
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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
using simpler English auctions increases pensions but mainly for those in the top four savings deciles