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Social security and risk sharing

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  • Gottardi, Piero
  • Kubler, Felix

Abstract

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex ante Pareto-improving in a stochastic OLG economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model financial markets are complete and competitive equilibria interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents[modifier letter apostrophe] welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing. We also examine the optimal size of a given social security system as well as its optimal reform.

Suggested Citation

  • Gottardi, Piero & Kubler, Felix, 2011. "Social security and risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1078-1106, May.
  • Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:1078-1106
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    More about this item

    Keywords

    Intergenerational risk sharing Social security Ex ante welfare improvements Social security reform Price effects;

    JEL classification:

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

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