Pareto-Improving Transition from Pay-as-you-goto Fully Funded Social Security under Uncertain Incomes

Nils Hauenschild

FinanzArchiv: Public Finance Analysis, 2000, vol. 57, issue 1, 39-62

Abstract: The possibility of a Pareto-improving transition from a pay-as-you-go to a fully funded pension system is discussed intensively in the literature. In this paper, the problem is analyzed within a standard overlapping generations model of a small open economy with stochastic wages. Applying the criterion of conditional Pareto-efficiency we derive a sufficient condition for the fully funded system to be preferred by all future generations and show that, in contrast to deterministic models with inelastic labour supply, a Pareto-improving abolition of the pay-as-you-go system is possible with probability one.

JEL-codes: H55 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (2)

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