A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk

This paper explores the pricing of annuities in a structural overlapping generations model in which the mortality rate of people when old is uncertain. A market clearing price for annuities is established below the fair price. At this price the willingness of old people to pay the young to carry old people's aggregate mortality risk is balanced by the willingness of the young to bear the risk. The model suggests that aggregate mortality risk is unlikely to be a major influence on annuity pricing.