Abstract
This paper investigates the effect of asymmetric information on the market for annuities when individuals are assumed to differ in the probability distribution of dying. Individual behaviour under life-insured and term-insured annuities is investigated. The market for such annuities is studied when the insurer cannot distinguish long-lived from short-lived retirees. Unlike the well-known results of Rothschild and Stiglitz, it is shown that, if an equilibrium exists, it can be either a pooling or a separating equilibrium. Given the same information as the private sector, a planner will be able to achieve an optimum under certain circumstances.
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