Intergenerational Risk Sharing by Means of Pay-as-you-go Programs – an Investigation of Alternative Mechanisms

Øystein Thøgersen

No 1759, CESifo Working Paper Series from CESifo

Abstract: A pay-as-you-go (paygo) pension program may provide intergenerational pooling of risks to individuals’ labor and capital income over the life cycle. By means of a model that provides illuminating closed form solutions, we demonstrate that the magnitude of the optimal paygo program and the nature of the underlying risk sharing effects are very sensitive to the chosen combination of risk concepts and stochastic specification of long run aggregate wage income growth. In an additive way we distinguish between the pooling of wage and capital risks within periods and two different intertemporal risk sharing mechanisms. For realistic parameter values, the magnitude of the optimal paygo program is largest when wage shocks are not permanent and individuals in any generation are considered from a pre-birth perspective, i.e. a “rawlsian risk sharing” perspective is adopted.

Keywords: social security; risk sharing; portfolio choice; persistence in income shocks (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-fin, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp1759.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1759

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().