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Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security

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Author Info
Martin Barbie
Marcus Hagedorn
Ashok Kaul
Abstract

We propose an extended PAYG social security system that conditions pension benefits on the aggregate wage sum and on the wage of one’s children. The latter increases parents’ incentives to provide their children with good within-family education. However, since wages depend stochastically on parents’ unobservable investment in their children’s human capital, some insurance against the productivity risk of one’s children is provided because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it to real world systems which typically do not condition benefits on the wages of one’s children. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as an intra-generational insurance against productivity risk.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp236.

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Handle: RePEc:zur:iewwpx:236

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Related research
Keywords: Human Capital Formation Social Security Intragenerational Insurance Heterogenous Households

Other versions of this item:

Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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    Other versions:
  2. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Blackwell Publishing, vol. 72(3), pages 651-664, 07. [Downloadable!] (restricted)
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  3. Robert C. Merton, 1981. "On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy Where Human Capital Is Not Tradeable," NBER Working Papers 0743, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May. [Downloadable!] (restricted)
    Other versions:
  5. Henning Bohn, 1998. "Risk Sharing in a Stochastic Overlapping Generations Economy," University of California at Santa Barbara, Economics Working Paper Series wp3-98, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
  6. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    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. [Downloadable!] (restricted)
  7. Gabrielle Demange & Guy Laroque, 1999. "Social Security and Demographic Shocks," Econometrica, Econometric Society, vol. 67(3), pages 527-542, May.
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  8. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October. [Downloadable!] (restricted)
  9. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Schweizer, Urs, 1996. "Endogenous fertility and the Henry George Theorem," Journal of Public Economics, Elsevier, vol. 61(2), pages 209-228, August. [Downloadable!] (restricted)
  12. Andrew B. Abel, . "The Social Security Trust Fund, the Riskless Interest Rate, and Capital Accumulation," Rodney L. White Center for Financial Research Working Papers 03-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
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  13. Enders, Walter & Lapan, Harvey E, 1982. "Social Security Taxation and Intergenerational Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 647-58, October. [Downloadable!] (restricted)
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  14. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 433-46, July. [Downloadable!] (restricted)
  15. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
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  17. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356. [Downloadable!] (restricted)
  18. repec:fth:calaec:03-98 is not listed on IDEAS
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