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Alternative Risk-Sharing Mechanisms of Social Security

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  • Øystein Thøgersen
  • Kine Bøhlerengen
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    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.

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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

    Volume (Year): 66 (2010)
    Issue (Month): 2 (June)
    Pages: 134-152

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    Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201006)66:2_134:armoss_2.0.tx_2-k

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    Related research

    Keywords: social security; risk-sharing; portfolio choice; persistence in income shocks;

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    Cited by:
    1. Meijdam, A.C. & Ponds, E.H.M., 2013. "On the Optimal Degree Of Funding Of Public Sector Pension Plans," Discussion Paper 2013-011, Tilburg University, Center for Economic Research.

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