Administrative Costs and Equilibrium Charges with Individual Accounts

33 Pages Posted: 7 Apr 1999 Last revised: 5 May 2000

See all articles by Peter A. Diamond

Peter A. Diamond

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 1999

Abstract

There are many individual account proposals. For government-organized accounts, the government arranges for both record-keeping and investment management. For privately-organized accounts, individuals directly select private firms to do these tasks. The government spreads the costs of government-organized accounts among accounts, outside sources of revenue, employers and workers. With privately-organized accounts, equilibrium prices reflect selling costs as well as administrative costs. Thus, government-organized accounts are organized on a group basis while privately-organized accounts are organized on an individual basis. In financial and insurance markets generally, the group and individual markets function very differently and yield different pricing structures. The paper describes a low cost/low services government-organized plan and estimates that it might cost $40-50 per worker per year. The nature of equilibrium with privately-organized accounts is discussed, with the conclusion that the costs would be very high compared to the cost of government organization.

Suggested Citation

Diamond, Peter A., Administrative Costs and Equilibrium Charges with Individual Accounts (March 1999). NBER Working Paper No. w7050. Available at SSRN: https://ssrn.com/abstract=157831

Peter A. Diamond (Contact Author)

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