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Voluntary participation and intergenerational risk sharing in a funded pension system

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  • Beetsma, Roel M.W.J.
  • Romp, Ward E.
  • Vos, Siert J.

Abstract

We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that mandatory participation is often necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 6 ()
Pages: 1310-1324

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1310-1324

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Participation constraints; Funded pensions; Intergenerational risk sharing;

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References

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  1. Ball, Laurence & Mankiw, N. Gregory, 2007. "Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design," Scholarly Articles 3443106, Harvard University Department of Economics.
  2. Piero Gottardi & Felix Kubler, 2009. "Social Security and Risk Sharing," Economics Working Papers ECO2009/12, European University Institute.
  3. Roel M. W. J. Beetsma & Ward E. Romp & Siert J. Vos, 2013. "Intergenerational Risk Sharing, Pensions, and Endogenous Labour Supply in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 141-154, 01.
  4. Cui, Jiajia & Jong, Frank De & Ponds, Eduard, 2011. "Intergenerational risk sharing within funded pension schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(01), pages 1-29, January.
  5. Bovenberg, A.L. & Koijen, R.S.J. & Nijman, T.E. & Teulings, C.N., 2007. "Saving and investing over the life cycle and the role of collective pension funds," Open Access publications from Tilburg University urn:nbn:nl:ui:12-301942, Tilburg University.
  6. Gollier, Christian, 2007. "Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund," IDEI Working Papers 42, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Gabrielle Demange, 2009. "On Sustainable Pay-as-You-Go Contribution Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 493-527, 08.
  8. Teulings, Coen & de Vries, Casper G., 2003. "Generational Accounting, Solidarity and Pension Losses," IZA Discussion Papers 961, Institute for the Study of Labor (IZA).
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  12. Krüger, Dirk & Kubler, Felix, 2005. "Pareto Improving Social Security Reform when Financial Markets Are Incomplete," CEPR Discussion Papers 5039, C.E.P.R. Discussion Papers.
  13. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc.
  14. Roel M. W. J. Beetsma & A. Lans Bovenberg, 2009. "Pensions and Intergenerational Risk-sharing in General Equilibrium," Economica, London School of Economics and Political Science, vol. 76(302), pages 364-386, 04.
  15. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
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  17. Dirk Krueger & Fabrizio Perri, 2009. "Public versus Private Risk Sharing," NBER Working Papers 15582, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Beetsma, Roel & Romp, Ward E, 2013. "Participation Constraints in Pension Systems," CEPR Discussion Papers 9656, C.E.P.R. Discussion Papers.
  2. Damiaan H.J. Chen & Roel Beetsma & Eduard Ponds & Ward E. Romp, 2014. "Intergenerational Risk-Sharing through Funded Pensions and Public Debt," CESifo Working Paper Series 4624, CESifo Group Munich.
  3. Damiaan H.J. Chen & Roel Beetsma, 2014. "Mandatory Participation in Occupational Pension Schemes in the Netherlands and other Countries," CESifo Working Paper Series 4593, CESifo Group Munich.

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