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Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems

John Hassler () and Assar Lindbeck

No 1774, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In an analysis of the risk-sharing properties of different types of pension systems, we show that only fixed-fee pay-as-you-go (PAYG) pension systems can provide risk sharing for living individuals. Under some circumstances, however, other PAYG pension systems can enhance the expected welfare of all generations by reducing intergenerational income variability. The paper derives conditions for this to occur. It also analyses the stability of actuarially fair PAYG pension systems. It is shown that if an actuarially fair pension with a non-balanced budget system is dynamically stable, its accumulated surpluses will converge to the same fund as in a fully funded system. The paper also shows that the welfare loss due to labour market distortions will, in fact, increase if the implicit marginal return in a compulsary system is raised above the average return.

Keywords: intergenerational; Pay-As-You-Go; Pension Systems (search for similar items in EconPapers)
JEL-codes: H5 H55 H6 (search for similar items in EconPapers)
Date: 1997-12
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Working Paper: Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems (1997)
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Working Paper: Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems (1997) Downloads
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