Economic growth and longevity risk with adverse selection

We study adverse selection on annuity markets in a general-equilibrium model of the closed economy. Agents differ in their health type and invest their assets on the annuity market. Without informational asymmetries themodel features a separating equilibriumin which each agent obtains an actuarially fair insurance. If the individual health types are unobservable to the annuity firms there exists a pooling equilibrium in which all agents annuitize at a common pooling rate. At this common rate unhealthy agentswouldeventually like to borrow but this would reveal their true health type. As a consequence, they face a self-imposed borrowing constraint. Surprisingly, the welfare and growth effects of the informational asymmetries are small.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.


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