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PRIVATE VERSUS PUBLIC OLD-AGE SECURITY

Richard Barnett (), Joydeep Bhattacharya () and Mikko Puhakka ()
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Mikko Puhakka: Department of Economics University of Oulu, Postal: P.O. BOX 4600, 90014 University of Oulu, Oulu, FINLAND

No 2012-14, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: We compare two institutions head on, a family compact – a parent makes a transfer to her parent in anticipation of a possible future gift from her children – with a pay-as-you-go, social security system in a lifecycle model with endogenous fertility wherein children are valued both as consumption and investment goods. Our focus is strictly on the pension dimension of these competing institutions. We show that an optimally-chosen family compact and a social security system cannot co-exist; indeed, the former may be preferred. A strong-enough negative shock to middle-age incomes destroys family compacts. While such a setting might appear ideal for the introduction of a social security system – as the experience of Europe, circa 1880s, would suggest – this turns out not to be the case: if incomes are too depressed to allow family compacts to flourish, they are also too low to permit introduction of an optimal social security system.

Keywords: fertility; family compacts; social security; intergenerational cooperation; pensions; self-enforcing constitutions (search for similar items in EconPapers)
JEL-codes: E21 E32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-09-02
New Economics Papers: this item is included in nep-age, nep-cwa, nep-dem, nep-dge and nep-mac
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Related works:
Journal Article: Private versus public old-age security (2018) Downloads
Working Paper: Private versus Public Old-Age Security (2012) Downloads
Working Paper: Private versus public old-age security (2012) Downloads
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