The Family as an Incomplete Annuities Market

Kotlikoff, Laurence J.; Spivak, Avia

doi:10.3386/w0362

Cited by 286 publications

(229 citation statements)

References 4 publications

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“…The benefits are so large because, without annuities, people who wish to smooth their consumption over time leave large bequests whether they value bequests or not. Kotlikoff and Spivak (1981) estimate that 55-year-olds without bequest motives consume only about three-fourths of their wealth on average. 9 Fully annuitizing their wealth using an annuity with a ten percent load would allow them to consume 90 percent of their wealth on average, 15 percent more than they consume without annuities.…”

Section: Theorymentioning

confidence: 99%

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Bequest motives and the annuity puzzle

Lockwood

2012

Review of Economic Dynamics

253

153

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Few retirees annuitize any wealth, a fact that has so far defied explanation within the standard framework of forward-looking, expected utility-maximizing agents. Bequest motives seem a natural explanation. Yet the prevailing view is that people with plausible bequest motives should annuitize part of their wealth, and thus that bequest motives cannot explain why most people do not annuitize any wealth. I show, however, that people with plausible bequest motives are likely to be better off not annuitizing any wealth at available rates. The evidence suggests that bequest motives play a central role in limiting the demand for annuities.

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Section: Theorymentioning

confidence: 99%

“…Without annuities, even people without bequest motives leave large bequests on average in an effort to smooth their consumption over time (Kotlikoff and Spivak, 1981). Annuities allow people to trade these incidental bequests for greater consumption.…”

Section: Introductionmentioning

confidence: 99%

Bequest motives and the annuity puzzle

Lockwood

2012

Review of Economic Dynamics

253

153

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“…This framework has been widely used to model annuity choices (Kotlikoff and Spivak (1981), Mitchell, Poterba, Warshawsky, and Brown (1999), Davidoff, Brown, and Diamond (2005)). At the time of the decision, the age of the individual is t 0 , and he expects a random length of life7 characterized by a mortality hazard κ t during period t > t 0 8.…”

Section: Model: Specification Identification and Estimationmentioning

confidence: 99%

Optimal Mandates and the Welfare Cost of Asymmetric Information: Evidence From the U.K. Annuity Market

2010

Econometrica

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Much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected. Once detected, however, there has been little attempt to quantify its welfare cost, or to assess whether and what potential government interventions may reduce these costs. To do so, we develop a model of annuity contract choice and estimate it using data from the U.K. annuity market. The model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options. We focus on the choice of length of guarantee among individuals who are required to buy annuities. The results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about £127 million per year, or about 2 percent of annuitized wealth. We also find that by requiring that individuals choose the longest guarantee period allowed, mandates could achieve the first-best allocation. However, we estimate that other mandated guarantee lengths would have detrimental effects on welfare. Since determining the optimal mandate is empirically difficult, our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest.

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“…However, it is difficult to disentangle the various motivations for intergenerational transfers in survey data. For example, while private transfers may decline when a recipient’s income increases, this does not necessarily mean that transfers are altruistically motivated, because other motives such as co-insurance cannot be ruled out (Kotlikoff and Spivak, 1981). Distinguishing between altruistic and strategic motives for giving is further complicated by the fact that there are many other reasons why people give: an aversion to unfairness or inequality (Fehr and Schmidt, 1999); the warm-glow of giving (Andreoni, 1989 1990); reciprocity – rewarding friendly actions or punishing hostile actions at a cost (Rabin, 1993; Camerer and Fehr, 2004); and reciprocal altruism – giving to generate or relieve an obligation (Camerer and Fehr, 2004; Cox et al , 2004; Leider et al , 2009; Ligon and Schechter, 2012).…”

mentioning

confidence: 99%

For Love or Reward? Characterising Preferences for Giving to Parents in an Experimental Setting

Porter

Adams‐Prassl

2015

Econ J

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Understanding the motivations behind intergenerational transfers is an important and active research area in economics. The existence and responsiveness of familial transfers have consequences for the design of intra and intergenerational redistributive programmes, particularly as such programmes may crowd out private transfers amongst altruistic family members. Yet, despite theoretical and empirical advances in this area, significant gaps in our knowledge remain. In this article, we advance the current literature by shedding light on both the motivation for providing intergenerational transfers, and on the nature of preferences for such giving behaviour, by using experimental techniques and revealed preference methods.

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The Family as an Incomplete Annuities Market

Cited by 286 publications

References 4 publications

Bequest motives and the annuity puzzle

Bequest motives and the annuity puzzle

Optimal Mandates and the Welfare Cost of Asymmetric Information: Evidence From the U.K. Annuity Market

For Love or Reward? Characterising Preferences for Giving to Parents in an Experimental Setting

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