Social Security in Theory and Practice (Ii): Efficiency Theories

Universitat Pompeu Fabra, Department of Economics Working Paper No. 385

41 Pages Posted: 23 Jun 1999

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Xavier Sala-i-Martin

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: April 23, 1999

Abstract

166 countries have some kind of public old age pension.What economic forces create and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "government economizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory". The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

See also the first part of the paper by Casey B. Mulligan and Xavier Sala-i-Martin "Social Security in Theory and Practice (I): Facts and Political Theories"

Note: For journal readers: A related paper is available at the URL which follows this abstract. It is written in html. Cut and paste beginning with http:// and ending with the 5-digit number.

JEL Classification: H55

Suggested Citation

Mulligan, Casey B. and Sala-i-Martin, Francesc Xavier, Social Security in Theory and Practice (Ii): Efficiency Theories (April 23, 1999). Universitat Pompeu Fabra, Department of Economics Working Paper No. 385. Available at SSRN: https://ssrn.com/abstract=166836 or http://dx.doi.org/10.2139/ssrn.166836

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-9017 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

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Francesc Xavier Sala-i-Martin

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States
212-854-7055 (Phone)

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