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Stochastic fertility, moral hazard, and the design of pay-as-you-go pension plans

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  • CREMER, Helmuth
  • GAHVARI, Firouz
  • PESTIEAU, Pierre

Abstract

This paper models a two-period overlapping generations economy in the steady state where the realization of the quantity/quality number of children depends on an initial investment in children and on a random shock. It shows that the implementation of the first-best allocation, in which the effort level is publicly observable, requires a subsidy on the investment in children. There should also be full insurance with respect to second-period consumption and pensions must be invariant to the number of children. On the other hand, when investment is unobservable and one cannot subsidize it, the full insurance property goes away. In this case, pensions must be linked positively to the number of children.

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File URL: http://dx.doi.org/10.1093/cesifo/ifr009
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2324.

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Handle: RePEc:cor:louvrp:-2324

Note: In : CESifo Economic Studies, 57(2), 332-348, 2011
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