The design of fully funded pension plans is affected by governance and incentive problems, as underlined by the experience of several countries. The analytic perspective of contract theory allows to detect the nature of such problems: pension-fund managers have strong incentives to manipulate market expectations about their capacity through wasteful activities (e.g. marketing). The design of funded pension plans has, thus, to trade-off efficiency losses and gains linked to high-powered incentives associated to the competition among fund managers. By means of a simple theoretical setting, this trade-off is shown to be driven by the integration of financing (contribution collection) and investment (asset allocation and management) activities. A separation of financing and investment allows to centralize the former and allocate collected money to a sector of competitive fund managers, via an auction mechanism. Under contract incompleteness, the quasi-competitive setting of funded pillar is proven to be Pareto-superior to the market of competitive pension funds (integrating financing and investment).
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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number
0003.
Find related papers by JEL classification: D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D44 - Microeconomics - - Market Structure and Pricing - - - Auctions D7 - Microeconomics - - Analysis of Collective Decision-Making D8 - Microeconomics - - Information, Knowledge, and Uncertainty H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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References listed on IDEAS 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.:
Martin Feldstein & Jeffrey B. Liebman, 2001.
"Social Security,"
NBER Working Papers
8451, National Bureau of Economic Research, Inc.
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Other versions:
Feldstein, Martin & Liebman, Jeffrey B., 2002.
"Social security,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324
Elsevier.
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