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Optimal Actuarial Fairness in Pension Systems - a Note

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  • Hassler, John

    ()
    (Institute for International Economic Studies, Stockholm University)

  • Lindbeck, Assar

    ()
    (Institute for International Economic Studies, Stockholm University)

Abstract

A rationale for a compulsory pension system is that the government wants to correct supposedly myopic behavior by the individuals. Given the existence of such a system, we calculate the optimal relation between marginal contributions and benefits, i.e., the optimal degree of marginal actuarial fairness, as seen from the point of view of the individuals or of the government. The following is shown to hold under general assumptions of individual utility: The optimal degree of marginal actuarial fairness increases in the rate of return in the social security system and decreases in the government’s rate of time preference. If the government’s rate of time preference is lower than the individual’s, the government gains more than the individuals by making the system more actuarially fair. It is also shown that labor supply always increases when the link between marginal contributions and benefits is strengthened.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 609.

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Length: 14 pages
Date of creation: 03 Nov 1997
Date of revision:
Handle: RePEc:hhs:iiessp:0609

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
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Fax: +46-8-161443
Web page: http://www.iies.su.se/
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Keywords: compulsory pension; marginal actuarial fairness;

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References

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  1. Abel, Andrew B, 1986. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," Econometrica, Econometric Society, vol. 54(5), pages 1079-97, September.
  2. Ekman, E., 1996. "Consumption and Savings Over the Life Cycle," Papers 1996-02, Uppsala - Working Paper Series.
  3. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  4. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
  5. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
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Cited by:
  1. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
  2. Hassler, J. & Lindbeck, A., 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Papers 631, Stockholm - International Economic Studies.
  3. Lindbeck, Assar, 1998. "Swedish Lessons for Post-Socialist Countries," Seminar Papers 645, Stockholm University, Institute for International Economic Studies.
  4. Hassler, John & Lindbeck, Assar, 1998. "Can and Should a Pay-As-You-Go Pension System Mimic a Funded System?," Working Paper Series 499, Research Institute of Industrial Economics.
  5. Góra, Marek & Palmer, Edward, 2004. "Shifting Perspectives in Pensions," IZA Discussion Papers 1369, Institute for the Study of Labor (IZA).
  6. Friedrich Breyer & Mathias Kifmann, 2001. "Incentives to Retire Later: A Solution to the Social Security Crisis?," Discussion Papers of DIW Berlin 266, DIW Berlin, German Institute for Economic Research.
  7. Tim Krieger & Stefan Traub, 2008. "Back to Bismarck? Shifting Preferences for Intragenerational Redistribution in OECD Pension Systems," Working Papers 13, University of Paderborn, CIE Center for International Economics.
  8. Tim Krieger & Stefan Traub, 2009. "Wie hat sich die intragenerationale Umverteilung in der staatlichen Säule des Rentensystems verändert? Ein internationaler Vergleich auf Basis von LIS-Daten," Working Papers 24, University of Paderborn, CIE Center for International Economics.
  9. Frederic S. Mishkin, 2000. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 7044, National Bureau of Economic Research, Inc.
  10. Eduardo Siandra, 1998. "Sistemas de pensiones, sus reformas y los mercados de capitales," Documentos de Trabajo (working papers) 0299, Department of Economics - dECON.

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