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Ex Ante Optimality and Social Security

Author

Listed:
  • Piero Gottardi
  • Felix Kubler

Abstract

We examine the possibility of a Pareto-improving pay-as-you-go social security system, using an ex-ante welfare criterion. Our objective is to identify the conditions under which a suitably designed pay-as-you-go social security system is welfare improving, when markets are complete and competitive equilibria are interim Pareto efficient, in a stochastic overlapping generations economy with long-lived assets and production. In such situation, a welfare improvement can only be obtained with regard to the agents' ex ante welfare, and arise from the possibility of inducing, through social security, an improved level of intergenerational risk sharing. We will examine both the possibility of finding a welfare improvement in the case of an 'ideal' social security system as well as in the case of more specific systems, as defined benefits and defined contributions. The analysis will be carried out in a simple set-up, where the various effects of the introduction of social security, on the prices of long-lived assets and the level of output, can be clearly identified

Suggested Citation

  • Piero Gottardi & Felix Kubler, 2004. "Ex Ante Optimality and Social Security," 2004 Meeting Papers 626, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:626
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    Citations

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    Cited by:

    1. Francisco Gomes & Alexander Michaelides & Valery Polkovnichenko, 2009. "Quantifying the Distortionary Fiscal Cost of ‘The Bailout’," Working Papers 2009-6, Central Bank of Cyprus.
    2. Francisco Gomes & Alexander Michaelides, 2008. "Asset Pricing with Limited Risk Sharing and Heterogeneous Agents," The Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 415-448, January.
    3. Valery Polkovnichenko & Alexander Michaelides & Francisco Gomes, 2007. "Fiscal Policy, Asset Pricing and Economic Activity in a Savers-Spenders Economy," 2007 Meeting Papers 191, Society for Economic Dynamics.

    More about this item

    Keywords

    Intergenerational Risk Sharing; Social Security; Ex Ante Optimality; Complete Markets;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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