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Illiquid Life Annuities

d'Albis, Hippolyte and Etner, Johanna (2013): Illiquid Life Annuities.

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Abstract

In this article, we consider illiquid life annuity contracts and show that they may be preferred to Yaari (1965)’s liquid contracts. In an overlapping-generation economy, liquid life annuities are demanded only if the equilibrium is dynamically inefficient. Alternatively, an equilibrium displaying a positive demand for illiquid life annuities is efficient. In this latter case, the welfare at steady-state is larger if illiquid life annuity contracts are available.

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