TY - JOUR
T1 - Asymmetric Information and Annuities
AU - Platoni, Silvia
PY - 2010
Y1 - 2010
N2 - The standard Rothschild and Stiglitz (1976) and Wilson (1977) analysis of adverse selection economies is extended to a particular model of annuity market which features both elements of moral hazard and adverse selection. Individuals are heterogeneous with respect to time preferences and they make investments in health care that affect their survival probabilities. The main case considered is that where both preferences and investments (and hence the endogenous survival probabilities) are unobserved. Thus the model captures a further source of inefficiency that is particular to annuity market: an endogenous correlation between the desire for annuities and the survival probabilities. The basic insights of Wilson (1977) - as worked out by Eckstein, Eichenbaum and Peled (1985) - are worth also in this new setting. When the equilibrium is separating, the government intervention may yield Pareto improvements. If the equilibrium is pooling, the government intervention may improve the well-being of individuals affected by the inefficiencies and the negative externalities caused by the asymmetric information.
AB - The standard Rothschild and Stiglitz (1976) and Wilson (1977) analysis of adverse selection economies is extended to a particular model of annuity market which features both elements of moral hazard and adverse selection. Individuals are heterogeneous with respect to time preferences and they make investments in health care that affect their survival probabilities. The main case considered is that where both preferences and investments (and hence the endogenous survival probabilities) are unobserved. Thus the model captures a further source of inefficiency that is particular to annuity market: an endogenous correlation between the desire for annuities and the survival probabilities. The basic insights of Wilson (1977) - as worked out by Eckstein, Eichenbaum and Peled (1985) - are worth also in this new setting. When the equilibrium is separating, the government intervention may yield Pareto improvements. If the equilibrium is pooling, the government intervention may improve the well-being of individuals affected by the inefficiencies and the negative externalities caused by the asymmetric information.
KW - Asymmetric Information
KW - Asymmetric Information
UR - http://hdl.handle.net/10807/32454
UR - http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9779.2010.01462.x/abstract
U2 - 10.1111/j.1467-9779.2010.01462.x
DO - 10.1111/j.1467-9779.2010.01462.x
M3 - Article
SN - 1097-3923
VL - 12
SP - 501
EP - 532
JO - Journal of Public Economic Theory
JF - Journal of Public Economic Theory
ER -