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Voluntary Participation and Intergenerational Risk Sharing in a Funded Pension System

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Author Info

  • Roel Beetsma

    ()
    (University of Amsterdam, Netspar, CEPR, and CESifo)

  • Ward Romp

    ()
    (University of Amsterdam, and Mn Services)

  • Siert J. Vos

    ()
    (University of Amsterdam, and Netspar)

Abstract

We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that it is likely that mandatory participation is necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing. Forthcoming in the 'European Economic Review'.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-056/2/DSF19.

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Date of creation: 17 Mar 2011
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Handle: RePEc:dgr:uvatin:20110056

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Related research

Keywords: participation constraints; funded pensions; intergenerational risk sharing;

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References

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  1. Henning Bohn, 2001. "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies," NBER Chapters, National Bureau of Economic Research, Inc, in: Risk Aspects of Investment-Based Social Security Reform, pages 203-246 National Bureau of Economic Research, Inc.
  2. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  3. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  4. Laurence Ball & N Gregory Mankiw, 2001. "Intergenerational Risk Sharing in the Spirit of Arrow Debreu and Rawls with Applications to Social Security Design," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 478, The Johns Hopkins University,Department of Economics.
  5. Gabrielle Demange & Guy Laroque, 2001. "Social Security with Heterogeneous Populations Subject to Demographic Shocks," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 26(1), pages 5-24, June.
  6. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 737-755, June.
  7. Bovenberg, A.L. & Koijen, R.S.J. & Nijman, T.E. & Teulings, C.N., 2007. "Saving and investing over the life cycle and the role of collective pension funds," Open Access publications from Tilburg University urn:nbn:nl:ui:12-301942, Tilburg University.
  8. Krueger, Dirk & Perri, Fabrizio, 2010. "Public versus Private Risk Sharing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7625, C.E.P.R. Discussion Papers.
  9. Roel M. W. J. Beetsma & Ward E. Romp & Siert J. Vos, 2013. "Intergenerational Risk Sharing, Pensions, and Endogenous Labour Supply in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 115(1), pages 141-154, 01.
  10. Campbell, John Y. & Chan, Yeung Lewis & Viceira, Luis M., 2003. "A multivariate model of strategic asset allocation," Journal of Financial Economics, Elsevier, Elsevier, vol. 67(1), pages 41-80, January.
  11. Felix Kubler & Department of Economics & Department of Economics & Piero Gottardi, 2007. "Social Security and RIsk Sharing," 2007 Meeting Papers, Society for Economic Dynamics 625, Society for Economic Dynamics.
  12. Matsen, E. & Thogersen, O., 2001. "Designing Social Security - A Portfolio Choice Approach," Papers, Norwegian School of Economics and Business Administration- 21/2001, Norwegian School of Economics and Business Administration-.
  13. Gabrielle Demange, 2009. "On Sustainable Pay-as-You-Go Contribution Rules," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 493-527, 08.
  14. Hassler, J. & Lindbeck, A., 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Papers, Stockholm - International Economic Studies 631, Stockholm - International Economic Studies.
  15. Teulings, Coen & de Vries, Casper G., 2003. "Generational Accounting, Solidarity and Pension Losses," IZA Discussion Papers 961, Institute for the Study of Labor (IZA).
  16. repec:fth:iniesr:493 is not listed on IDEAS
  17. Gollier, Christian, 2007. "Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 42, Institut d'Économie Industrielle (IDEI), Toulouse.
  18. Cui, Jiajia & Jong, Frank De & Ponds, Eduard, 2011. "Intergenerational risk sharing within funded pension schemes," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 10(01), pages 1-29, January.
  19. Roel M. W. J. Beetsma & A. Lans Bovenberg, 2009. "Pensions and Intergenerational Risk-sharing in General Equilibrium," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 76(302), pages 364-386, 04.
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Citations

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Cited by:
  1. Beetsma, Roel & Romp, Ward E, 2013. "Participation Constraints in Pension Systems," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9656, C.E.P.R. Discussion Papers.
  2. Damiaan H.J. Chen & Roel Beetsma, 2014. "Mandatory Participation in Occupational Pension Schemes in the Netherlands and other Countries," CESifo Working Paper Series 4593, CESifo Group Munich.
  3. Damiaan H.J. Chen & Roel Beetsma & Eduard Ponds & Ward E. Romp, 2014. "Intergenerational Risk-Sharing through Funded Pensions and Public Debt," CESifo Working Paper Series 4624, CESifo Group Munich.

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