Optimal Design of Funded Pension Schemes

Lans Bovenberg () and Roel Mehlkopf ()
Additional contact information
Lans Bovenberg: Tilburg University and Netspar, 5000 LE Tilburg, The Netherlands
Roel Mehlkopf: Tilburg University and Netspar, 5000 LE Tilburg, The Netherlands

Annual Review of Economics, 2014, vol. 6, issue 1, 445-474

Abstract: This article reviews the literature on the optimal design and regulation of funded pension schemes. We first characterize optimal saving and investment over an individual’s life cycle. Within a stylized modeling framework, we explore optimal individual saving and investing behavior. Subsequently, various extensions of the model are considered, such as additional financial risk factors, stochastic human capital, and more elaborate individual preferences. We then turn to the literature on intergenerational risk sharing, which suggests that a long-lived entity such as a pension fund or the government can yield ex ante welfare gains by allowing nonoverlapping generations to trade risk. The scope for this type of intergenerational risk sharing, however, is limited by the ability to commit generations to the contract. These commitment problems raise concerns with respect to sustainability and intergenerational fairness. We explore the role of solvency regulations to address these concerns about intergenerational fairness and discontinuity risk.

Keywords: saving; investment; life cycle; risk sharing; commitment problem; discontinuity risk (search for similar items in EconPapers)
JEL-codes: D91 G11 G23 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080213-040918 (application/pdf)
Full text downloads are only available to subscribers. Visit the abstract page for more information.

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:anr:reveco:v:6:y:2014:p:445-474

Ordering information: This journal article can be ordered from
http://www.annualreviews.org/action/ecommerce

Access Statistics for this article

More articles in Annual Review of Economics from Annual Reviews Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA.
Bibliographic data for series maintained by http://www.annualreviews.org ().