Optimal Design of Pension Funds: A Mission Impossible

CentER Discussion Paper Series No. 1998-25

Posted: 2 Dec 1998

See all articles by Jeroen Suijs

Jeroen Suijs

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Peter Borm

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Econometrics & Operations Research

Date Written: 1998

Abstract

Nowadays many employers offer their employees the possibility of an insurance against too large losses in income when retiring or becoming disabled. This paper models the optimization problem of the employer when setting up such a so-called pension fund. Not surprisingly, it turns out that the optimal solution depends on the premium the employees are willing to pay at most for the insurance. Since this is private information for an employee and hence not known to the employer, he needs to collect information regarding these maximum premiums. It is shown that in most cases the employer is unable to perfectly inform himself on these maximum premiums. So, he cannot create the right incentives for his employees to reveal their maximum premiums truthfully.

JEL Classification: J33

Suggested Citation

Suijs, Jeroen and De Waegenaere, Anja M.B. and Borm, Peter E. M., Optimal Design of Pension Funds: A Mission Impossible (1998). CentER Discussion Paper Series No. 1998-25. Available at SSRN: https://ssrn.com/abstract=138011

Jeroen Suijs (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Peter E. M. Borm

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Department of Econometrics & Operations Research

Tilburg, 5000 LE
Netherlands

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