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Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk

Daniel Harenberg and Alexander Ludwig ()

No 14/204, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations and demonstrate that they interact over the life-cycle. The interactions appear even though the two risks are orthogonal and they amplify the welfare consequences of introducing social security. On the one hand, the interactions increase the welfare benefits from insurance. On the other hand, they can in- or decrease the welfare costs from crowding out of capital formation. This ambiguous effect on crowding out means that the net effect of these two channels is positive, hence the interactions of risks increase the total welfare benefits of social security.

Keywords: social security; idiosyncratic risk; aggregate risk; welfare; insurance; crowding out (search for similar items in EconPapers)
JEL-codes: C68 E27 E62 G12 H55 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-09
New Economics Papers: this item is included in nep-age, nep-dge, nep-fdg, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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Related works:
Journal Article: Social security in an analytically tractable overlapping generations model with aggregate and idiosyncratic risks (2015) Downloads
Working Paper: Social security in an analytically tractable overlapping generations model with aggregate and idiosyncratic risk (2015) Downloads
Working Paper: Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk (2014) Downloads
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