Simple theory and common sense indicate that there is considerable value to annuitization; yet, worldwide and in the United States the market for private annuities is small and few individuals purchase them. Some possible reasons are that many people are already well annuitized by Social Security and private pensions, adverse selection in the private annuity market makes annuities too expensive for most people, bequest motives are strong, annuities are illiquid, and individuals are irrational and short-sighted. While this book is not directly organized to examine these explanations, it provides theoretical analyses that will assist a reader to understand some of them and to be able to make his or her own assessment of their importance. The book is very timely-public pension systems in many countries are under economic pressure resulting from increasing life expectancy, declining fertility, and a benefit structure that is mismatched to those demographic trends. A common response by government is to replace some or all of the public pension program with a system of private accounts. But an important aspect of the new systems is whether accumulated balances in the new accounts will be annuitized, under what conditions, and at what prices.
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