Voluntary Participation and Intergenerational Risk Sharing in a Funded Pension System

Tinbergen Institute Discussion Paper No. 11-056/DSF19

31 Pages Posted: 20 Mar 2011  

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Netspar

Ward E. Romp

University of Amsterdam - Faculty of Economics and Business

Siert J. Vos

University of Amsterdam

Multiple version iconThere are 3 versions of this paper

Date Written: March 16, 2011

Abstract

We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that it is likely that mandatory participation is necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing.

Keywords: participation constraints, funded pensions, intergenerational risk sharing

JEL Classification: C61, H55, J32

Suggested Citation

Beetsma, Roel M. W. J. and Romp, Ward E. and Vos, Siert J., Voluntary Participation and Intergenerational Risk Sharing in a Funded Pension System (March 16, 2011). Tinbergen Institute Discussion Paper No. 11-056/DSF19. Available at SSRN: https://ssrn.com/abstract=1788972 or http://dx.doi.org/10.2139/ssrn.1788972

Roel M. W. J. Beetsma (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Ward E. Romp

University of Amsterdam - Faculty of Economics and Business ( email )

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Siert J. Vos

University of Amsterdam ( email )

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