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Defined benefit pension schemes: a welfare analysis of risk sharing and labour market distortions

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  • DRAPER, NICK
  • WESTERHOUT, ED
  • NIBBELINK, ANDRÉ

Abstract

Traditionally, collective defined benefit pension schemes have played an important role in the provision of pensions. Various trends such as population ageing put these schemes under serious pressure, however. Whether this is good or bad depends among other things on two factors: one is the value of the risk sharing between generations that is organized by pension schemes, and another is the cost of the distortions of labour supply decisions that these collective schemes imply. This paper constructs a model with overlapping generations of households and a pension scheme to assess the role of these two factors. The paper finds that the welfare gain from intergenerational risk sharing generally dominates the cost of labour supply distortions.

Suggested Citation

  • Draper, Nick & Westerhout, Ed & Nibbelink, André, 2017. "Defined benefit pension schemes: a welfare analysis of risk sharing and labour market distortions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(4), pages 467-484, October.
    • Handle: RePEc:cup:jpenef:v:16:y:2017:i:04:p:467-484_00
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    Cited by:

    1. Kastelein, Pim B. & Romp, Ward E., 2020. "Pension Fund Restoration Policy In General Equilibrium," Macroeconomic Dynamics, Cambridge University Press, vol. 24(7), pages 1785-1814, October.
    2. Chen, Damiaan H. J. & Beetsma, Roel M. W. J. & Ponds, Eduard H. M. & Romp, Ward E., 2016. "Intergenerational risk-sharing through funded pensions and public debt," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(2), pages 127-159, April.
    3. Mădălina-Gabriela ANGHEL & Dragoș Alexandru HAȘEGAN, 2020. "The voluntary pension funds – a viable solution to supplement the pensioners' incomes," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(623), S), pages 51-64, Summer.

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