Social Security Investment in Equities

Peter A. Diamond () and John Geanakoplos ()
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John Geanakoplos: Cowles Foundation, Yale University, http://cowles.econ.yale.edu/faculty/geanakoplos.htm

No 1314R, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper explores the general equilibrium impact of social security portfolio diversification into private securities, either through the trust fund or private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions.

Keywords: Social security; privatization; diversification (search for similar items in EconPapers)
JEL-codes: H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2001-07, Revised 2002-08
Note: CFP 1070.
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Published in The American Economic Review (September 2003), 93(4): 1047-1074

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Journal Article: Social Security Investment in Equities (2003)
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