Alternative Risk-Sharing Mechanisms of Social Security

Øystein Thøgersen and Kine Bøhlerengen

FinanzArchiv: Public Finance Analysis, 2010, vol. 66, issue 2, 134-152

Abstract: Adopting a portfolio choice approach to pension design, we derive illuminating closed form solutions for optimal pay-as-you-go social security programs. We demonstrate that the nature of the implied risk-sharing effects and their magnitudes are sensitive to the stochastic specification of aggregate wage income growth (i.e. the implicit return on the pay-as-you-go program). Considering individuals in any generation from a "Rawlsian", prebirth perspective, fairly large pay-as-you-go programs in terms of the magnitude of the optimal contribution rate can be rationalized if wage shocks are not permanent.

Keywords: social security; risk-sharing; portfolio choice; persistence in income shocks (search for similar items in EconPapers)
JEL-codes: D91 E32 G11 H55 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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DOI: 10.1628/001522108X524188

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