Is it really good to annuitize

Although rational consumers without bequest motives are better oÞ investing exclusively with annuitized instruments in partial equilibrium, we demonstrate the welfare effect of annuitization is ambiguous in general equilibrium on account of the pecuniary externality. Accidental bequests improve consumption allocations by transferring capital mostly to young people rather than to the old, for whom the present value of the transfer is much less. If households are not borrowing constrained in the rational competitive equilibrium where they annuitize, there will exist a consumption/investment rule involving nonannuitized investments that confers higher utility in general equilibrium while maintaining the same equilibrium capital stock. Thus it may be that households eschew annuitization because society has learned it is suboptimal. Regardless of the explanation for this behavior, policymakers should not take steps to encourage more annuitization by the public. consumption ; saving ; coordination ; learning, general equilibrium ; pecuniary externality ; annuities puzzle ; bequests ; mortality risk ; overlapping generations ; optimal irrational behavior ; Golden Rule