Time: 10:00 am-11:30 am, May 27th, 2022
Speaker: Christopher Tonetti
Meeting ID: 816 2616 4288
We use a new survey to document significant perceived nonpayment risk in annuity, life insurance, and long-term care insurance markets. That is, people perceive a substantial risk that insurance will not pay out when it should. In preliminary analysis, we find that nonpayment risk significantly predicts insurance product ownership, and that annuity and long-term care insurance ownership would be approximately twice as high if products were perceived as risk-free. To interpret our measures, we develop a new life-cycle model of the joint demand for these three products that allows for uninsurable nonpayment risk as well as incomplete markets along other dimensions. We find that these risks significantly decrease insurance demand, resulting in small observed welfare losses from suboptimal insurance portfolio holdings. However, the welfare costs of nonpayment risk and incomplete markets—whether real or perceived—are large relative to a complete market benchmark.
Professor Christopher Tonetti is a macroeconomist and he is an Associate Professor of Economics at Stanford GSB. His primary research focus is economic growth. He also studies household finance, labor, and life-cycle economics. His growth research highlights the importance of the diffusion of information to economic growth. His household finance, labor, and life-cycle research leverages innovative data to better understand the forces that determine people's consumption, saving, labor supply, and insurance purchase behavior. Professor Tonetti's research has been published in the Journal of Political Economy, the American Economic Review and Econometrica. He has been an editor at the newly created JPE Macro Journal and he has been an Associate Editor of the Review of Economic Dynamics since 2020. Professor Tonetti received a Ph. D in Economics from New York University in 2013.