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Flexible Life Annuities
Author(s) -
DIRER ALEXIS
Publication year - 2010
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2009.01446.x
Subject(s) - annuity , life annuity , longevity risk , economics , actuarial science , longevity , welfare , consumption (sociology) , pension , finance , market economy , social science , sociology , biology , genetics
Annuity contracts typically deliver a stream of income at a predetermined level in order to insure against the risk of longevity. This paper explores whether flexible annuities, which give subscribers the possibility to choose between different levels of annuity, are welfare enhancing. In the case where agents gradually discover their actual probability of survival, a predetermined and “one‐size‐fits‐all” annuity plan is optimal. If an expenditure risk is added along with the longevity risk, a flexible annuity plan is better even though the consumption path cannot be isolated from uninsured expenses anymore.