A seminar by Professor Daniel Bauer from the University of Wisconsin
Title: Accommodation or Obfuscation? Product Innovation in the Variable Annuities Market (Joint work with Xiaochen Jing)
Abstract: Variable Annuities, which make up a substantial part of retirement products sold by insurance companies, have become increasingly complex over the past decades. In this paper, we investigate the drivers for these product innovations. We distinguish “virtuous” innovations that complete the market and “obfuscating” innovations that increase complexity without benefitting consumers. We demonstrate that both forms are potentially relevant in the Variable Annuities market, both theoretically and empirically. In particular, we document a recurring pattern where innovative products that expand the scope of attainable consumption paths in retirement are followed by many more complex variants in the same product class.
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