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Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design

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Author Info
Laurence Ball
N. Gregory Mankiw

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Abstract

This paper examines the optimal allocation of risk in an overlapping-generations economy. It compares the allocation of risk the economy reaches naturally to the allocation that would be reached if generations behind a Rawlsian “veil of ignorance” could share risk with one another through complete Arrow-Debreu contingent-claims markets. The paper then examines how the government might implement optimal intergenerational risk sharing with a social security system. One conclusion is that the system must either hold equity claims to capital or negatively index benefits to equity returns.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 115 (2007)
Issue (Month): ()
Pages: 523-547
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Handle: RePEc:ucp:jpolec:v:115:y:2007:p:523-547

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Martin Feldstein & Elena Ranguelova, 2001. "Individual Risk in an Investment-Based Social Security System," NBER Working Papers 8074, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
    Other versions:
  3. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Henning Bohn, 1998. "Risk Sharing in a Stochastic Overlapping Generations Economy," University of California at Santa Barbara, Economics Working Paper Series wp3-98, Department of Economics, UC Santa Barbara. [Downloadable!]
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  5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  6. repec:fth:calaec:03-98 is not listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruce, Neil & Turnovsky, Stephen J., 2007. "Variable Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare," Economics Discussion Papers 2007-5, Kiel Institute for the World Economy. [Downloadable!]
  2. Olovsson, Conny, 2004. "The Welfare Gains of Improving Risk Sharing in Social Security," Seminar Papers 728, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  3. Bruce, Neil & Turnovsky, Stephen J., 2007. "Uncertain Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(2). [Downloadable!]
  4. Jovan Zamac, 2005. "Pension Design when Fertility Fluctuates: The Role of Capital Mobility and Education Financing," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Piero Gottardi & Felix Kubler, 2006. "Social Security and Risk Sharing," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  6. Egil Matsen & Øystein Thøgersen, 2000. "Designing Social Security – A Portfolio Choice Approach," Working Paper Series 1102, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
    Other versions:
  7. Espen Henriksen & Steve Spear, 2006. "Dynamic Suboptimality of Competitive Equilibrium in Multiperiod Overlapping Generations Economies," Computing in Economics and Finance 2006 223, Society for Computational Economics. [Downloadable!]
    Other versions:
  8. John Y. Campbell & Yves Nosbusch, 2006. "Intergenerational Risksharing and Equilibrium Asset Prices," NBER Working Papers 12204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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