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Too risk averse to purchase insurance? : A theoretical glance at the annuity puzzle

Bommier, Antoine ; Grand, François

In: Journal of Risk and Uncertainty, 2014, vol. 48, no. 2, p. 135-166

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    Titre
    • Too risk averse to purchase insurance?
      A theoretical glance at the annuity puzzle
    Auteur
    • Bommier, Antoine. ETH Zürich, Zürichbergstrasse 18, 8032, Zürich, Switzerland
    • Grand, François. EMLyon Business School, 23 Avenue Guy de Collongue, 69130, Écully, France
    Type de document
    • Postprint
    Langue
    • Inglese
    Publié dans
    • Journal of Risk and Uncertainty, 2014, vol. 48, no. 2, p. 135-166. Springer US; http://www.springer-ny.com
    Autre version électronique
    Identifiant OAI-PMH
    • oai:doc.rero.ch:325433
    Summary
    This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there is a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for lifetime risk aversion generates a significantly smaller willingness-to-pay for annuities than the one generated by a standard time-additive model. Moreover, the calibration predicts that riskless savings finance one third of consumption, in line with empirical findings.