I study the role of social security in providing insurance when there is adverse selection in the annuity market. I calculate welfare gain from mandatory annuitization in the social security system relative to a laissez-faire benchmark, using a model in which individuals have private information about their mortality. I estimate large heterogeneity in mortality using the Health and Retirement Study. Despite that, I find small welfare gain from mandatory annuitization. Social security has a large effect on annuity prices because it crowds out demand by high-mortality individuals. Welfare gain would have been significantly larger in the absence of this effect.
|Original language||English (US)|
|Number of pages||44|
|Journal||Journal of Political Economy|
|State||Published - Aug 1 2015|
ASJC Scopus subject areas
- Economics and Econometrics