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Pensions and Intergenerational Risk-Sharing When Relative Consumption Matters

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  • Ennio Bilancini

    ()

  • Massimo D'Antoni

    ()

Abstract

Concern for relative consumption introduces an additional source of risk for future pensioners. We study its implications, in terms of optimal risk diversification, for the choice of the mix between a pay-as-you-go and a funded pension systems. We identify a necessary and sufficient condition for the optimal share of pay-as-you-go to be larger when relative consumption matters. We argue that when model parameters assume reasonable values such condition is satisfied

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 541.

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Date of creation: Aug 2008
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Handle: RePEc:usi:wpaper:541

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Keywords: pay-as-you-go pensions; fully funded pensions; relative consumption; inter-generational risk-sharing;

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