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Intergenerational redistribution and risk sharing with changing longevity

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  • Torben Andersen

Abstract

Trend increases in longevity are a global phenomenon challenging the fiscal sustainability of current welfare arrangements. Policy proposals abound and often build on implicit assertions concerning intergenerational equity. This paper offers a simple but manageable OLG model with endogenous retirement and cohort-specific longevity to address intergenerational redistribution and risk sharing. While it is well known that a utilitarian planner strives for consumption smoothing, it is shown that healthy ageing calls for work smoothing in the sense that retirement ages increase with longevity. Hence, cohorts with higher longevity should contribute to their larger consumption needs via later retirement, although it is shown that the planner still front-loads some financing (pre-saving). Stochastic longevity raises the issue of intergenerational risk sharing, which implies that cohorts turning out to have a high longevity are compensated at the expense of cohorts turning out to have a relatively short longevity. Copyright Springer-Verlag Wien 2014

Suggested Citation

  • Torben Andersen, 2014. "Intergenerational redistribution and risk sharing with changing longevity," Journal of Economics, Springer, vol. 111(1), pages 1-27, February.
  • Handle: RePEc:kap:jeczfn:v:111:y:2014:i:1:p:1-27
    DOI: 10.1007/s00712-013-0336-6
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    Cited by:

    1. Barslund, Mikkel Marten von Werder & von Werder, Marten, 2016. "Measuring ageing and the need for longer working lives in the EU," CEPS Papers 11349, Centre for European Policy Studies.
    2. Broeders, Dirk & Mehlkopf, Roel & van Ool, Annick, 2021. "The economics of sharing macro-longevity risk," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 440-458.
    3. Igor Fedotenkov, 2019. "Optimal asymmetric sector-specific labour taxation in an overlapping generations model," Journal of Economics, Springer, vol. 127(1), pages 1-18, June.
    4. Svend E. Hougaard Jensen & Thorsteinn Sigurdur Sveinsson & Gylfi Zoega, 2021. "Longevity Adjustment of Retirement Age and Intragenerational Inequality," Economica, London School of Economics and Political Science, vol. 88(350), pages 339-363, April.
    5. Metzger, Christoph, 2016. "The German statutory pension scheme: Balance sheet, cross-sectional internal rates of return and implicit tax rates," FZG Discussion Papers 63, University of Freiburg, Research Center for Generational Contracts (FZG).

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    More about this item

    Keywords

    Longevity; Retirement; Pre-funding; Risk sharing; H3; J1; D6; D91;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • D6 - Microeconomics - - Welfare Economics
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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