Social Security and Risk Sharing

Piero Gottardi () and Felix Kubler ()

No CESifo Working Paper No. 1705, CESifo Working Paper Series from CESifo Group Munich

Abstract: In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex-ante Pareto-improving in a stochastic overlapping generations economy with capital accumulation and land. We argue that these conditions are consistent with many calibrations of the model used in the literature. In our model financial markets are complete and competitive equilibria are interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents’ welfare is evaluated ex ante, and arises from the possibility of inducing, through social security, an improved level of intergenerational risk sharing. We will also examine the optimal size of a given social security system as well as its optimal reform. The analysis will be carried out in a relatively simple set-up, where the various effects of social security, on the prices of long-lived assets and the stock of capital, and hence on output, wages and risky rates of returns, can be clearly identified.

Keywords: intergenerational risk sharing; social security; ex ante welfare improvements; interim optimality; price effects (search for similar items in EconPapers)
JEL-codes: D58 D91 E62 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-mac, nep-pbe and nep-pub
Date: 2006
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Related works:
Working Paper: Social Security and Risk Sharing (2009)
Working Paper: Social Security and Risk Sharing (2006)
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