Annuity demand theory
This chapter discusses Yaari's (19665) annuitization result, which states that a risk-averse individual concerned about longevity risk (uncertain length of life) will always purchase actuarially-fair annuity contracts, enabling them to smooth consumption in every period of retirement. The chapter explains the assumptions behind this result. It models the demand for annuities in an expected utility framework, and demonstrates the value of annuities under various specifications of preferences.
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