Paper: arXiv 2502.13742

Authors: Feng Runhuan, Liang Zongxia, Song Yilun

Abstract

This paper presents a novel framework for decentralized annuities, aiming to address the limitations of traditional pension systems such as defined contribution (DC) and defined benefit (DB) plans, while providing lifetime financial support. It sheds light on often ignored pitfalls within current retirement schemes and introduces individual rationality properties. The research delves into various fairness concepts that underpin existing plans, emphasizing that decentralized annuities, while meeting similar fairness criteria, offer enhanced flexibility for individual rationality and improved social welfare for all participants. Using theoretical models and examples, we demonstrate the potential of decentralized annuities to outperform self-managed plans (DC) and to produce effects comparable to defined benefit (DB) plans, particularly within larger participant pools. The paper concludes by exploring the managerial implications of decentralized annuities and laying the groundwork for the further advancement of equitable and sustainable decentralized annuity systems.

Complexity vs Empirical Score

  • Math Complexity: 7.5/10
  • Empirical Rigor: 3.5/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper provides a strong theoretical and mathematical foundation for decentralized annuities, introducing innovative game-theoretic and mechanism-design concepts like individual rationality to tontine structures. However, it relies primarily on theoretical modeling and stylized numerical examples rather than empirical backtesting or real-world data validation.

Research Flowchart

  flowchart TD
    A[Research Goal: Create Decentralized Annuities for Lifetime Financial Security] --> B[Identify Limitations in Traditional DB/DC Pension Schemes]
    B --> C[Formulate Theoretical Models & Fairness / Individual Rationality Criteria]
    C --> D[Simulate & Compare Decentralized vs. DC & DB Plans Across Pool Sizes]
    D --> E[Outcome: Decentralized Annuities Match DB Effects & Outperform DC Plans]
    E --> F[Establish Framework for Equitable & Sustainable Retirement Systems]

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