Consumer Confusion: The Choice of AFORE

By Moisés J. Schwartz, Enrique E. Domínguez, Roberto Calderón-Colín

July 1, 2008

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Moisés J. Schwartz, Enrique E. Domínguez, and Roberto Calderón-Colín. Consumer Confusion: The Choice of AFORE, (USA: International Monetary Fund, 2008) accessed November 21, 2024

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.

Subject: Competition, Expenditure, Pension spending, Pensions, Retirement

Keywords: Competitive market, Market share, Normal distribution, Utility function, WP

Publication Details

Pages:

61
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/177
Stock No:

WPIEA2008177
ISBN:

9781451870350
ISSN:

1018-5941

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