Alexis Direr, Laboratoire d'Economie d'Orléans (LEO), rue de Blois - BP 6739, 45067 Orléans Cedex 2 France (Alexis.Direr@ens.fr).
Flexible Life Annuities
Article first published online: 20 JAN 2010
© 2010 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 12, Issue 1, pages 43–55, February 2010
How to Cite
DIRER, A. (2010), Flexible Life Annuities. Journal of Public Economic Theory, 12: 43–55. doi: 10.1111/j.1467-9779.2009.01446.x
I thank the participants of the Paris School of Economics “Health and Insurance” workshop and the CESifo Venice Summer Institute Workshop on Longevity and Annuitization. Valuable comments by an anonymous referee are also gratefully acknowledged. Any errors or omissions remain my own.
- Issue published online: 20 JAN 2010
- Article first published online: 20 JAN 2010
- Received October 2, 2007; Accepted December 3, 2008.
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.