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Pension Benefit Insurance and Pension Plan Portfolio Choice

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Author Info

  • Thomas Crossley

    (Koç University, and University of Cambridge and Institute for Fiscal Studies, Cambridge)

  • Mario Jametti

    (University of Lugano, Switzerland, and CESifo)

Abstract

Pension benefit guarantees have been introduced in several countries to protect private plan members from the loss of income associated with the termination of an underfunded plan. Most such schemes face financial difficulty. Consequently, policy reforms are being contemplated. Economic theory suggests that such schemes will suffer moral hazard problems. We test a specific theoretical prediction: insured plans will invest more heavily in risky assets. Our test exploits policy differences across Canadian jurisdictions. We find that insured plans invest about 5% more in equities than do similar plans without benefit guarantees. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 1 (March)
Pages: 337-341

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Handle: RePEc:tpr:restat:v:95:y:2013:i:1:p:337-341

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Web page: http://mitpress.mit.edu/journals/

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Related research

Keywords: pensions; bene t guarantee; moral hazard;

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References

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  1. Cooper, Russell W. & Ross, Thomas W., 2003. "Protecting underfunded pensions: the role of guarantee funds," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(03), pages 247-272, November.
  2. Jeffrey R. Brown, 2008. "Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 177-198, Winter.
  3. Michael Baker & Kevin Milligan, 2010. "Evidence from Maternity Leave Expansions of the Impact of Maternal Care on Early Child Development," Journal of Human Resources, University of Wisconsin Press, vol. 45(1).
  4. Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
  5. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  6. David W. Wilcox, 2006. "Reforming the Defined-Benefit Pension System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 235-304.
  7. Zvi Bodie, 1989. "Pension Funds and Financial Innovation," NBER Working Papers 3101, National Bureau of Economic Research, Inc.
  8. Nielson, Norma L. & Chan, David K. W., 2007. "Private pensions and government guarantees: clues from Canada," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(01), pages 45-66, March.
  9. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
  10. Mario Jametti, 2008. "Underfunding of Defined Benefit Pension Plans and Benefit Guarantee Insurance: An Overview of Theory and Evidence," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 39-46, November.
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Cited by:
  1. Gebhard Kirchgässner, 2009. "Die Krise der Wirtschaft: Auch eine Krise der Wirtschaftswissenschaften?," University of St. Gallen Department of Economics working paper series 2009 2009-18, Department of Economics, University of St. Gallen.

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