Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security |
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Authors: | Zvi Eckstein Martin Eichenbaum Dan Peled |
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Affiliation: | Yale University, New Haven, CT 06520, USA;Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, PA 15213, USA;Carnegie-Mellon University, Pittsburgh, PA 15213, USA, Technion-Israel Institute of Technology |
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Abstract: | This paper explores the implications of social security programs and annuity markets through which agents, who are characterized by different distributions of length of lifetime, share death-related risks. When annuity markets operate, a non-discriminatory social security program affects only the intragenerational allocation of resources. In the absence of private information regarding individual survival probabilities, such a program will lead to a non-optimal intragenerational allocation of resources. However, the presence of adverse selection considerations gives rise to a Pareto improving role for a mandatory non-discriminatory social security program. |
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