Automatic Balancing Mechanism and Discount Rate: Towards an Optimal Transition to Balance Pay-As-You-Go Pension Scheme Without Intertemporal Dictatorship?

Frédéric Gannon, Florence Legros (florence.legros@icn-artem.com) and Vincent Touzé
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Florence Legros: ICN-Business School

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2021, pp 223-228 from Springer

Abstract: Abstract The paper deals with the choice of the public discount rate in the framework of dynamic control applied to a specific pension scheme’s automatic balancing mechanism. We introduce a declining discount rate to address the issue of “intertemporal dictatorship”. Assuming such a time-dependent discount rate permits to solve the conflict between present and political needs to procrastinate and the long-run objective of no dictatorship of the present. We use a smooth-ABM and we detail the theoretical properties of this dynamic control problem to tackle properly this issue. Finally, we apply this ABM to the US Social Security and discuss about the sensitivity of the simulated results to the speed of declining of the public discount rate.

Keywords: Intertemporal dictatorship; Pension schemes; Automatic balancing mechanisms; Intertemporal discount factor (search for similar items in EconPapers)
Date: 2021
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Working Paper: Automatic Balancing Mechanism and Discount Rate: Towards an Optimal Transition to Balance Pay-As-You-Go Pension Scheme Without Intertemporal Dictatorship? (2021)
Working Paper: Automatic Balancing Mechanism and Discount Rate: Towards an Optimal Transition to Balance Pay-As-You-Go Pension Scheme Without Intertemporal Dictatorship? (2021)
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DOI: 10.1007/978-3-030-78965-7_33

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