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Publication - Professor Edmund Cannon

    Cohort mortality risk or adverse selection in annuity markets?


    Cannon, ES & Tonks, I, 2016, ‘Cohort mortality risk or adverse selection in annuity markets?’. Journal of Public Economics, vol 141., pp. 68-81


    We show that tests for adverse selection in annuity markets using prices are not identified. Within the UK annuity market, different annuity products create the potential for a Rothschild-Stiglitz separating equilibrium as different risk types could choose different annuities. Empirical analyses using the “money's worth” suggest that prices are indeed consistent with this explanation. However, we show that this pattern of annuity prices would also result from the actions of regulated annuity providers who must reserve against cohort mortality risk. Annuity products that might attract different consumer risk types also have different risks for the provider.

    Full details in the University publications repository