Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems

CEPR Discussion Paper Series Number 1774

Posted: 27 Apr 1998

See all articles by John Hassler

John Hassler

Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Assar Lindbeck

; CESifo (Center for Economic Studies and Ifo Institute); Research Institute of Industrial Economics (IFN)

Date Written: December 1997

Abstract

In an analysis of the risk-sharing properties of different types of pension systems, we show that only fixed-fee pay-as-you-go (PAYG)pension systems can provide risk sharing for living individuals. Under some circumstances, however, other PAYG pension systems can enhance the expected welfare of all generations by reducing intergenerational income variability. The paper derives conditions for this to occur. It also analyses the stability of actuarially fair PAYG pension systems. It is shown that if an actuarially fair pension with a non-balanced budget system is dynamically stable, its accumulated surpluses will converge to the same fund as in a fully funded system. The paper also shows that the welfare loss due to labour market distortions will, in fact, increase if the implicit marginal return in a compulsary system is raised above the average return.

JEL Classification: H5, H6, H55

Suggested Citation

Hassler, John and Lindbeck, Assar, Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems (December 1997). CEPR Discussion Paper Series Number 1774, Available at SSRN: https://ssrn.com/abstract=79534

John Hassler (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 816 2070 (Phone)
+46 816 1443 (Fax)

Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Germany

Assar Lindbeck

( email )

Stockholm, SE-10691
Sweden
+46 8 163 078 (Phone)
+46 8 162 946 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
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Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/assarl

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