Pension Collaboration: Strength in Numbers

Abstract

Regulation is one way to minimize the harmful impact of financial markets dysfunction. This article argues that collaboration among financial market agents such as pension funds offers a powerful alternative and points to a growing number of successful examples of collaborative initiatives. Behind these real world examples are useful theories of cooperation and conventions. Together, the examples and theories lead to an eight-step framework for identifying and designing optimal collaborative initiatives among pension funds and their agents. The power of this framework is demonstrated by using it to address the specific problem of short-termism, which leads to a mismatch between the short horizon conventions of many investment agents and the long horizon needs of retirement savings owners. The framework helps shape carrot and stick collaboration strategies that will lengthen investment horizons to match savings owner needs.