Optimal Sustainable Intergenerational Insurance

Francesco Lancia, Alessia Russo and Timothy Worrall

No 300, Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Optimal intergenerational insurance is examined in a stochastic overlapping generations endowment economy with limited enforcement of risk-sharing transfers. Transfers are chosen by a benevolent planner who maximizes the expected discounted utility of all generations while respecting the participation constraint of each generation. We show that the optimal sustainable intergenerational insurance is history dependent. The risk from a shock is unevenly spread into the future, generating heteroscedasticity and autocorrelation of consumption even in the long run. The optimum can be interpreted as a social security scheme characterized by a minimum welfare entitlement for the old and state-contingent entitlement thresholds.

Keywords: Intergenerational insurance; Limited commitment; Risk sharing; Stochastic overlapping generations (search for similar items in EconPapers)
JEL-codes: D64 E21 H55 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2020-12
New Economics Papers: this item is included in nep-age, nep-dge, nep-ias, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.econ.ed.ac.uk/papers/id300_esedps.pdf

Related works:
Working Paper: Optimal Sustainable Intergenerational Insurance (2021)
Working Paper: Optimal Sustainable Intergenerational Insurance (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:300

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