Annuities, Bequests, and Portfolio Diversification


  • Hippolyte d'Albis, Toulouse School of Economics (LERNA). Emmanuel Thibault, Toulouse School of Economics (GREMAQ), France (

  • We would like to thank Johanna Etner, Firouz Gahvari, Pierre Pestieau, Sébastien Pouget, and Nicolas Treich for fruitful and stimulating discussions. We would also like to thank the participants of the CESifo Workshop on “Longevity and Annuitization” at Venice (July 16–17, 2007) where an earlier version of this paper has been presented and the two anonymous referees of this Journal for helpful comments and suggestions. The financial support of the Europlace Institute of Finance is gratefully acknowledged.


In this article, the diversification motives of the demand for annuities is analyzed. Using a model allowing for the uncertainty of both the human life length and the interest rate, the Decision Maker is supposed to choose an optimal portfolio to maximize a bequest. Conditions under which an increase in the risk of bond returns increase the demand for annuities are proposed and discussed. Moreover, it is shown that, contrary to previous claims, more risk adversion is associated with a lower demand for annuities.