Uncertain Lifetimes, Informational Asymmetries and Public Choice: Compulsory vs. Voluntary Social Security

Peter G.C. Townley

Working Paper from Economics Department, Queen's University

Abstract: A government's policy choice between compulsory and voluntary social security schemes is examined when it can identify individuals neither by life expectancy nor by preferences. As shown by simulation, compulsory schemes can decrease welfare in a variety of circumstances whereas, in the same circumstances, viable, welfare-enhancing voluntary schemes exist. Because a majority of risk-averse voters always prefer a compulsory scheme, a government's state of ignorance exists ex ante and ex post. Thus, a government can unwittingly implement a welfare-reducing scheme.

Pages: 32 pages
Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:719

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