Advanced Search
MyIDEAS: Login

Fair demographic risk sharing in defined contribution pension systems

Contents:

Author Info

  • Gabay, Daniel
  • Grasselli, Martino
Registered author(s):

    Abstract

    In this article we formulate and solve the optimal design problem of a defined contribution public pension fund, in a highly stylized but still rather general non-stationary framework. We adopt the viewpoint of a benevolent social planner who aims at treating in a fair manner the successive overlapping generations participating to such a long-term mandatory system. Using the approach of El Karoui and Jeanblanc (1998) for the optimal consumption and portfolio choice problem with random income in a complete market, we exhibit a solution to our intertemporal stochastic control problem where each generation receives a fair (lumpsum) retirement benefit: it is proportional to the contributions she has paid during her active worklife and follows a fixed common rule (although her pension value itself may depend on variables only observable at her retirement time). We next relax the assumption that the collective pension system is mandatory and investigate the performance of individual investment plans in the market. Comparing the outcomes of both alternatives, we derive a condition under which the collective fund can be expected to overperform the individual plan. In the special case of a stationary economy, such a possibility has been pointed out by Gollier (2008). In fact this effect results from the possibility for the collective fund to borrow today against contributions of future generations, which allows to implement riskier strategies and may improve its performance.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0165188911002338
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 36 (2012)
    Issue (Month): 4 ()
    Pages: 657-669

    as in new window
    Handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:657-669

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/jedc

    Related research

    Keywords: Demographic risk sharing; Defined contribution pension scheme; Optimal control; Duality theory;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:657-669

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.