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Voluntary participation and intergenerational risk sharing in a funded pension system

  • Beetsma, Roel M.W.J.
  • Romp, Ward E.
  • Vos, Siert J.

We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that mandatory participation is often necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 6 ()
Pages: 1310-1324

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1310-1324
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Laurence Ball & N. Gregory Mankiw, 2001. "Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design," Harvard Institute of Economic Research Working Papers 1921, Harvard - Institute of Economic Research.
  2. Matsen, Egil & Thogersen, Oystein, 2004. "Designing social security - a portfolio choice approach," European Economic Review, Elsevier, vol. 48(4), pages 883-904, August.
  3. Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," CEPR Discussion Papers 1774, C.E.P.R. Discussion Papers.
  4. Christian Gollier, 2007. "Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund," CESifo Working Paper Series 1969, CESifo Group Munich.
  5. Roel M. W. J. Beetsma & Ward E. Romp & Siert J. Vos, 2013. "Intergenerational Risk Sharing, Pensions, and Endogenous Labour Supply in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 141-154, 01.
  6. John Y. Campbell & Yeung Lewis Chan & Luis M. Viceira, 2001. "A Multivariate Model of Strategic Asset Allocation," NBER Working Papers 8566, National Bureau of Economic Research, Inc.
  7. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  8. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, vol. 96(3), pages 737-755, June.
  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.
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  12. Piero Gottardi & Felix Kubler, 2006. "Social Security and Risk Sharing," CESifo Working Paper Series 1705, CESifo Group Munich.
  13. Gabrielle Demange, 2009. "On Sustainable Pay-as-You-Go Contribution Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 493-527, 08.
  14. Roel M. W. J. Beetsma & A. Lans Bovenberg, 2009. "Pensions and Intergenerational Risk-sharing in General Equilibrium," Economica, London School of Economics and Political Science, vol. 76(302), pages 364-386, 04.
  15. Cui, Jiajia & Jong, Frank De & Ponds, Eduard, 2011. "Intergenerational risk sharing within funded pension schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(01), pages 1-29, January.
  16. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  17. Gabrielle Demange & Guy Laroque, 2001. "Social Security with Heterogeneous Populations Subject to Demographic Shocks," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 26(1), pages 5-24, June.
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