Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design
Laurence Ball
Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)
N. Gregory Mankiw
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
May 2001
NBER Working Paper No. w8270
Abstract:
This paper examines the optimal allocation of risk in an overlapping-generations economy. It compares the allocation of risk the economy reaches naturally to the allocation that would be reached if generations behind a Rawlsian 'veil of ignorance' could share risk with one another through complete Arrow-Debreu contingent-claims markets. The paper then examines how the government might implement optimal intergenerational risk sharing with a social security system. One conclusion is that the system must either hold equity claims to capital or negatively index benefits to equity returns.
Number of Pages in PDF File: 42
working papers series
Suggested Citation
Ball, Laurence M. and Mankiw, N. Gregory, Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design (May 2001). NBER Working Paper No. w8270. Available at SSRN: http://ssrn.com/abstract=268879
