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Alternative Risk-Sharing Mechanisms of Social Security
Authors: Thøgersen, Øystein; Bøhlerengen, Kine
Source: FinanzArchiv: Public Finance Analysis, Volume 66, Number 2, June 2010 , pp. 134-152(19)
Publisher: Mohr Siebeck
Abstract:
Adopting a portfolio choice approach to pension design, we derive illuminating closed form solutions for optimal pay-as-you-go social security programs. We demonstrate that the nature of the implied risk-sharing effects and their magnitudes are sensitive to the stochastic specification of aggregate wage income growth (i.e. the implicit return on the pay-as-you-go program). Considering individuals in any generation from a “Rawlsian”, prebirth perspective, fairly large pay-as-you-go programs in terms of the magnitude of the optimal contribution rate can be rationalized if wage shocks are not permanent.Keywords: SOCIAL SECURITY; RISK-SHARING; PORTFOLIO CHOICE; PERSISTENCE IN INCOME SHOCKS
Document Type: Research article
DOI: http://dx.doi.org/10.1628/001522110X524188
Publication date: 2010-06-01
- FinanzArchiv founded in 1884 is one of the world's oldest professional journals in public finance.
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