Abstract

http://ssrn.com/abstract=1371211
 
 

References (48)



 
 

Citations (2)



 


 



Should Risky Firms Offer Risk-Free DB Pensions?


David A. Love


Williams College - Department of Economics

Paul A. Smith


Federal Reserve Board of Governors

David W. Wilcox


Federal Reserve Board - Division of Research and Statistics

April 2, 2009


Abstract:     
We develop a simple model of pension financing to study the effects of pension risk on shareholder value. In the model, firms minimize costs, total compensation must clear the labor market, and a government pension insurer guarantees a portion of promised benefits. We find that in the absence of mispriced pension insurance, the optimal pension strategy under most specifications is to immunize all sources of market risk. Mispriced pension insurance, however, gives firms the incentive to introduce risk into their pension promises, offering an explanation for some of the observed prevalence of risky pensions in the real world.

Number of Pages in PDF File: 40

Keywords: pensions, bankruptcy, risk, portfolio choice

JEL Classification: G11, G23, G32

working papers series


Download This Paper

Date posted: April 1, 2009 ; Last revised: April 5, 2009

Suggested Citation

Love, David A. and Smith, Paul A. and Wilcox, David W., Should Risky Firms Offer Risk-Free DB Pensions? (April 2, 2009). Available at SSRN: http://ssrn.com/abstract=1371211 or http://dx.doi.org/10.2139/ssrn.1371211

Contact Information

David A. Love
Williams College - Department of Economics ( email )
South Academic Building, RM 202
Williamstown, MA 01267
United States
Paul A. Smith (Contact Author)
Federal Reserve Board of Governors ( email )
20th and C Streets, NW
Washington, DC 20551
United States
David W. Wilcox
Federal Reserve Board - Division of Research and Statistics ( email )
20th and C Streets, NW
Mailstop 153
Washington, DC 20551
United States
Feedback to SSRN


Paper statistics
Abstract Views: 572
Downloads: 107
Download Rank: 148,082
References:  48
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.265 seconds