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Administrative Costs and Equilibrium Charges with Individual Accounts

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  • Peter 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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7050.

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Date of creation: Mar 1999
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Publication status: published as Administrative Costs and Equilibrium Charges with Individual Accounts , Peter A. Diamond. in Administrative Aspects of Investment-Based Social Security Reform , Shoven. 2000
Handle: RePEc:nbr:nberwo:7050

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  1. Olivia S. Mitchell, 1996. "Administrative Costs in Public and Private Retirement Systems," NBER Working Papers 5734, National Bureau of Economic Research, Inc.
  2. 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.
  3. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 2000. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
  4. Peter Diamond, 1998. "The Economics of Social Security Reform," NBER Working Papers 6719, National Bureau of Economic Research, Inc.
  5. 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.
  6. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November.
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Cited by:
  1. 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.
  2. 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.
  3. René Weber & David S. Gerber, 2007. "Aging, Asset Allocation, and Costs," IMF Working Papers 07/29, International Monetary Fund.
  4. Impavido, Gregorio & Rocha, Roberto, 2006. "Competition and performance in the Hungarian second pillar," Policy Research Working Paper Series 3876, The World Bank.
  5. Peter A. Diamond & Peter R. Orszag, 2005. "Saving Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 11-32, Spring.
  6. Alan Siu, 2002. "Hong Kong's Mandatory Provident Fund," Cato Journal, Cato Journal, Cato Institute, vol. 22(2), pages 317-332, Fall.
  7. D'Amato, Marcello & Galasso, Vincenzo, 2002. "Aggregate Risk, Political Constraints and Social Security Design," CEPR Discussion Papers 3330, C.E.P.R. Discussion Papers.
  8. 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.
  9. 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.
  10. 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.

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