Social Security in Theory and Practice (Ii): Efficiency Theories, Narrative Theories, and Implications for Reform

40 Pages Posted: 10 Jul 2000 Last revised: 9 May 2010

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: May 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 (1999) 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 or 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.

Suggested Citation

Mulligan, Casey B. and Sala-i-Martin, Francesc Xavier, Social Security in Theory and Practice (Ii): Efficiency Theories, Narrative Theories, and Implications for Reform (May 1999). NBER Working Paper No. w7119. Available at SSRN: https://ssrn.com/abstract=227339

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

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Chicago, IL 60637
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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 )

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United States
212-854-7055 (Phone)

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