Who should bear the risk of economic growth?

Rafael Berriel and Carlos Eugênio da Costa ()

No 817, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: How is aggregate risks optimally shared between workers and retirees? We break this question in two parts. First, how ought risk to be shared between two groups of agents: one which must be provided incentives to make effort and other, which no longer be incentivized? Second, since incentives may be backloaded through pension entitlements, how does backloading optimally vary across states of nature? After formalizing these two aspects of the problem, we show that perfect risk sharing is optimal for log utility and when aggregate productivity growth is i.i.d.. For all other cases, departures from perfect risk sharing are welfare improving if more risk is born by retirees (resp. workers) when productivity growth is persistent (resp. mean reverting). Our numerical implementations however suggest that perfect risk sharing is approximately optimal for commonly used parameter values.

Date: 2020
New Economics Papers: this item is included in nep-age, nep-rmg and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repositorio.fgv.br/bitstreams/5cbeae88-734 ... c662a5ce6f6/download (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:817

Access Statistics for this paper

More papers in FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil) Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().