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Journal Article

Redistribution and Insurance: Mandatory Annuitization with Mortality Heterogeneity

Jeffrey R. Brown
The Journal of Risk and Insurance
Vol. 70, No. 1 (Mar., 2003), pp. 17-41
Stable URL: http://www.jstor.org/stable/3520004
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Redistribution and Insurance: Mandatory Annuitization with Mortality Heterogeneity
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Abstract

This article examines the distributional implications of mandatory longevity insurance when mortality heterogeneity exists in the population. Previous research has demonstrated the significant financial redistribution that occurs under alternative annuity programs in the presence of differential mortality across groups. This article embeds that analysis into a life-cycle framework that allows for an examination of distributional effects on a utility-adjusted basis. It finds that the degree of redistribution that occurs from the introduction of a mandatory annuity program is substantially lower on a utility-adjusted basis than when evaluated on a purely financial basis. In a simple life-cycle model with no bequests, complete annuitization is welfare enhancing even for those with higher-than-average expected mortality rates, so long as administrative costs are sufficiently low. These findings have implications for policy toward annuitization, particularly as part of a reformed Social Security system.

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