Journal of Risk and Uncertainty

, Volume 48, Issue 2, pp 135–166 | Cite as

Too risk averse to purchase insurance?

A theoretical glance at the annuity puzzle
  • Antoine BommierEmail author
  • François Le Grand


This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there is a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for lifetime risk aversion generates a significantly smaller willingness-to-pay for annuities than the one generated by a standard time-additive model. Moreover, the calibration predicts that riskless savings finance one third of consumption, in line with empirical findings.


Annuity puzzle Insurance demand Bequest Intergenerational transfers Risk aversion Multiplicative preferences 

JEL Classifications

D11 D81 D91 



We are grateful to Edmund Cannon, Alexis Direr, Glenn Harrison, Lee Lockwood, Thomas Post, James Poterba, Ray Rees, Harris Schlesinger (the editor), an anonymous referee and seminar participants at ETH Zurich, University of Paris I, University of Zurich, 2011 Summer Meetings of the Econometric Society and CEAR/MRIC Behavioral Insurance Workshop 2012 (LMU, Münich) for their comments.

Supplementary material

11166_2014_9190_MOESM1_ESM.pdf (309 kb)
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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.ETH ZürichZürichSwitzerland
  2. 2.EMLyon Business SchoolÉcullyFrance

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