Consumer Confusion: The Choice of AFORE in Mexico

 
Author/Editor: Calderón-Colín, Roberto ; Domínguez, Enrique E. ; Schwartz, Moisés J.
 
Publication Date: July 01, 2008
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper was prepared for the World Bank 4th Annual Contractual Savings Conference (Washington DC, April 2008) co-organized by Gregorio Impavido (gimpavido@imf.org). The article shows that account transfers among pension administrators in Mexico barely respond to price or return considerations and in general has not improved the consumer's pension balance. Instead of strengthening competition through lower fees and higher returns for the consumer, AFORE switching has so far undermined the system and resulted in the destruction of value. Moreover, "noisy" evaluations of the product by the consumer tend to undermine the power of competition. Thus, an increased number of pension fund managers has not provided a more competitive environment. The theoretical framework allows for the estimation of "noise" and mark-ups in the AFORE industry. As the number of AFOREs increases, the mark-up diminishes at a very slow rate. This implies that more participants in the industry will hardly affect prices.
 
Series: Working Paper No. 08/177
Subject(s): Mexico | Pensions | Pension supervision | Competition | Demand

Author's Keyword(s): Pensions | defined contribution | individual accounts | competition | retirement savings | consumer choice | consumer confusion | noise distribution | mark-up.
 
English
Publication Date: July 01, 2008
Format: Paper
Stock No: WPIEA2008177 Pages: 61
Price:
US$18.00 (Academic Rate:
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