Wharton Pension Research Council Working Papers

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Working Paper

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Competition across money managers, along with market entry, in theory could ensure that capital market remains competitive. But in Chile, which has had a privatized pension system for 25 years, high rates of switching between the funds and little downward movement on fees, have been interpreted as evidence of market inefficiency. This chapter uses a change in the regulatory rules governing the marketing of AFP pensions (Administradoras de Fondos de Pensiones) in Chile to investigate the empirical basis for sources of market frictions. We find that switching patterns are on a par with trading in US 401(k) accounts, and further, that switchers tend to be highly educated and relatively more highly paid. Switching is also more common among those with higher levels of financial literacy. The 1997 regulatory change appears to have reduced switching, particularly among the better educated.


Chile, capital market, switching, regulation

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Copyright/Permission Statement

Opinions and errors are solely those of the authors and do not reflect views of the institutions supporting the research nor with whom the authors are affiliated. This paper will appear in the volume edited by Annamaria Lusardi, Ed. Overcoming the Saving Slump: Making Financial Education and Saving Programs More Effective. University of Chicago Press (forthcoming).© 2007 Mitchell , Todd, and Bravo. All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council. © 2007 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors acknowledge research support from NIA grant AG023774-01, and funding from the Mellon Foundation to the Population Studies Center on Latin American demographic issues. The research was also supported by an award from the Population Aging Research Center (PARC) at the University of Pennsylvania Population Studies Center and the Boettner Center for Pensions and Retirement Security and Pension Research Council at the University of Pennsylvania. Helpful research assistance was provided by José Luis Ruiz, Jeremy Skog, and Javiera Vásquez. Useful suggestions from Solange Berstein, Gary Engelhardt, and Annamaria Lusardi are gratefully acknowledged.

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Date Posted: 16 December 2019