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Intragenerational externalities and intergenerational transfers

  • KOLMAR, MARTIN
  • MEIER, VOLKER

In an environment with asymmetric information and intragenerational externalities, the implementation of a first-best efficient Clarke-Groves- Vickrey mechanism may not be feasible if it has to be self-financing. By using intergenerational transfers, the arising budget deficit can be covered in every generation only if the initial allocation is not dynamically efficient. While introducing a pay-as-you-go scheme without addressing the externality already yields a Pareto improvement, further welfare gains can be captured by using the additional resources to achieve a perfect internalization.

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Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 11 (2012)
Issue (Month): 04 (October)
Pages: 531-548

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Handle: RePEc:cup:jpenef:v:11:y:2012:i:04:p:531-548_00
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