Voluntary Participation and Intergenerational Risk Sharing in a Funded Pension System
Roel M. W. J. Beetsma
University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Netspar
Ward E. Romp
University of Amsterdam - Faculty of Economics and Business
Siert J. Vos
University of Amsterdam
March 16, 2011
Tinbergen Institute Discussion Paper No. 11-056/DSF19
We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that it is likely that mandatory participation is necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing.
Number of Pages in PDF File: 31
Keywords: participation constraints, funded pensions, intergenerational risk sharing
JEL Classification: C61, H55, J32
Date posted: March 20, 2011
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