IDEAS home Printed from https://ideas.repec.org/p/crp/wpaper/31.html
   My bibliography  Save this paper

Risk aversion and the utility of annuities

Author

Listed:
  • Giacomo Ponzetto

    (Harvard University)

Abstract

A well-known result in life-cycle models with uncertain lifetime is that, absent other sources of uncertainty, egoistic agents should annuitize all their wealth. The gain from access to an annuity market, as measured by the increase in non-annuitized wealth required to obtain the same utility level, has repeatedly been shown to be a positive function of risk aversion in expected-utility models. This paper extends the analysis by considering the recursive utility function introduced by Epstein and Zin. By disentangling risk aversion from the elasticity of intertemporal substitution it is shown that the utility value of annuitization is decreasing with both parameters. The classical Yaari result that access to a fair annuity market leads to the same consumption dynamics as in the certainty scenario is also shown to obtain only in the expected-utility case.

Suggested Citation

  • Giacomo Ponzetto, 2003. "Risk aversion and the utility of annuities," CeRP Working Papers 31, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    • Handle: RePEc:crp:wpaper:31
    as

    Download full text from publisher

    File URL: http://www.cerp.carloalberto.org/wp-content/uploads/2008/12/WP_31.pdf?d2641f
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hippolyte d’Albis & Emmanuel Thibault, 2018. "Ambiguous life expectancy and the demand for annuities," Theory and Decision, Springer, vol. 85(3), pages 303-319, October.
    2. Antoine Bommier & François Grand, 2014. "Too risk averse to purchase insurance?," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 135-166, April.
    3. Antoine Bommier, Francois Le Grand, "undated". "Too Risk Averse to Purchase Insurance? A Theoretical Glance at the Annuity Puzzle," Working Papers ETH-RC-12-002, ETH Zurich, Chair of Systems Design.
    4. Carlos Vidal-Melia & Ana Lejárraga-García, 2004. "The Bequest Motive And Single People’S Demand For Life Annuities," Public Economics 0405005, University Library of Munich, Germany.

    More about this item

    Keywords

    Annuity market; risk;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crp:wpaper:31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Silvia Maero (email available below). General contact details of provider: https://edirc.repec.org/data/cetorit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.