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Administrative Costs and Equilibrium Charges with Individual Accounts

In: Administrative Aspects of Investment-Based Social Security Reform

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  • Peter A. Diamond

Abstract

There are many individual account proposals. For government-organized accounts, the government arranges for both record-keeping and investment management. For privately-organized accounts, individuals directly select private firms to do these tasks. The government spreads the costs of government-organized accounts among accounts, outside sources of revenue, employers and workers. With privately-organized accounts, equilibrium prices reflect selling costs as well as administrative costs. Thus, government-organized accounts are organized on a group basis while privately-organized accounts are organized on an individual basis. In financial and insurance markets generally, the group and individual markets function very differently and yield different pricing structures. The paper describes a low cost/low services government-organized plan and estimates that it might cost $40-50 per worker per year. The nature of equilibrium with privately-organized accounts is discussed, with the conclusion that the costs would be very high compared to the cost of government organization.

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This chapter was published in:

  • John B. Shoven, 2000. "Administrative Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number shov00-1, octubre-d.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7470.

    Handle: RePEc:nbr:nberch:7470

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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.:
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    1. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, . "New Evidence on the Money's Worth of Individual Annuities," Pension Research Council Working Papers 97-9, Wharton School Pension Research Council, University of Pennsylvania.
    2. Malcolm Edey & John Simon, 1998. "Australia's Retirement Income System," NBER Chapters, in: Privatizing Social Security, pages 63-97 National Bureau of Economic Research, Inc.
    3. Olivia S. Mitchell, 1996. "Administrative Costs in Public and Private Retirement Systems," NBER Working Papers 5734, National Bureau of Economic Research, Inc.
    4. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November.
    5. James M. Poterba & Mark J. Warshawsky, 1999. "The Costs of Annuitizing Retirement Payouts from Individual Accounts," NBER Working Papers 6918, National Bureau of Economic Research, Inc.
    6. Peter Diamond, 1998. "The Economics of Social Security Reform," NBER Working Papers 6719, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Douglas W. Elmendorf & Jeffrey B. Liebman & David W. Wilcox, 2001. "Fiscal Policy and Social Security Policy During the 1990s," NBER Working Papers 8488, National Bureau of Economic Research, Inc.
    2. René Weber & David S. Gerber, 2007. "Aging, Asset Allocation, and Costs," IMF Working Papers 07/29, International Monetary Fund.
    3. Impavido, Gregorio & Rocha, Roberto, 2006. "Competition and performance in the Hungarian second pillar," Policy Research Working Paper Series 3876, The World Bank.
    4. Ronald Fischer & Pablo González & Pablo Serra, 2003. "The Privatization of Social Services in Chile: an Evaluation," Documentos de Trabajo 167, Centro de Economía Aplicada, Universidad de Chile.
    5. D'Amato, Marcello & Galasso, Vincenzo, 2002. "Aggregate Risk, Political Constraints and Social Security Design," CEPR Discussion Papers 3330, C.E.P.R. Discussion Papers.
    6. Peter A. Diamond & Peter R. Orszag, 2005. "Saving Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 11-32, Spring.
    7. Rowena A. Pecchenino & Patricia S. Pollard, 2001. "Government mandated private pensions: a dependable foundation for retirement security?," Working Papers 1999-012, Federal Reserve Bank of St. Louis.
    8. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
    9. Antón Pérez, José Ignacio, 2006. "The Reform of the Pension Systems in Easterm Europe and these Impact about the Efficiency and Equity/La reforma de los sistemas de pensiones en Europa del Este y su impacto sobre la eficiencia y la eq," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 24, pages 643 (20 pá, Agosto.
    10. Peeters, Marga, 2011. "“Better Safe than Sorry” - Individual Risk-free Pension Schemes in the European Union - Macroeconomic Benefits, the Mobile Working Citizen’s Perspective and Why Nots," MPRA Paper 33571, University Library of Munich, Germany.
    11. Alan Siu, 2002. "Hong Kong's Mandatory Provident Fund," Cato Journal, Cato Journal, Cato Institute, vol. 22(2), pages 317-332, Fall.

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