On Intergenerational Risk Sharing within Social Security Schemes

31 Pages Posted: 1 Aug 2001

See all articles by Andreas Wagener

Andreas Wagener

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Vienna University of Economics and Business Administration

Date Written: June 2001

Abstract

One of the main reasons to include pay-as-you-go (PAYG) schemes in multi-pillared pension systems is that they may entail beneficial risk-sharing and diversification features. However, depending on the "pension formula" these features vary significantly for different types of PAYG schemes. We derive individually most-preferred PAYG rules (represented by a risk-sharing parameter) for young and old members of a society. These preferences depend among others on the correlation between the risks of PAYG scheme and funded schemes and on the trust in the durability of the pension rule. We find that the generations' interests with respect to the optimal PAYG policy need not necessarily clash, in particular not if future economic conditions are expected to be similar to today's. We discuss the implications of these findings for the political economy of multi-pillar pension systems.

Keywords: Social Security, Intergenerational Risk Sharing, Pay-as-you-go Pensions, Majority Voting

JEL Classification: H55, D78

Suggested Citation

Wagener, Andreas, On Intergenerational Risk Sharing within Social Security Schemes (June 2001). CESifo Working Paper Series No. 499, Available at SSRN: https://ssrn.com/abstract=277273

Andreas Wagener (Contact Author)

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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