Intergenerational Risk Sharing

18 Pages Posted: 31 May 2004 Last revised: 27 Sep 2010

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Hal R. Varian

University of California, Berkeley - School of Information; University of California, Berkeley - Operations and Information Technology Management Group; National Bureau of Economic Research (NBER)

Date Written: October 1985

Abstract

In this paper, we argue that in designing government debt and tax-transfer policies, it is important to consider their implications for the allocation of risk between generations. There is no reason to presume that the market or the family can allocate risk efficiently to future generations, implying that stochastic government policies have the potential to create first-order welfare improvements. The model provides a non-Keynsian justification for debt-finance of wars and recessions, as well as an added rationale for Social Security type tax-transfer schemes which aid unlucky generations, e.g., the Depression generation,at the expense of luckier generations.

Suggested Citation

Gordon, Roger H. and Varian, Hal R., Intergenerational Risk Sharing (October 1985). NBER Working Paper No. w1730. Available at SSRN: https://ssrn.com/abstract=227401

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Hal R. Varian

University of California, Berkeley - School of Information ( email )

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National Bureau of Economic Research (NBER)

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