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Social Security with Heterogeneous Populations Subject to Demographic Shocks

Author

Listed:
  • Gabrielle Demange

    (DELTA, 48 Boulevard Jourdan, Paris 75014, France, e-mail: demange@delta.ens.fr)

  • Guy Laroque

    (Direction des Etudes et Synthèses Economiques, INSEE, 15 boulevard Gabriel Péri, BP 100, 92244 Malakoff Cedex, France, e-mail: laroque@ensae.fr)

Abstract

In a previous paper, we showed how a pay-as-you-go social security scheme, based on voluntary contributions, can be an appropriate institution to reach an optimal sharing of risks among generations in the presence of demographic uncertainties. We study here the functioning of such schemes when there are different population strata, with different demographic shocks and wages. We show that while a collective voluntary pay-as-you-go scheme can provide efficient intergenerational risk sharing, it is likely to be destabilized by pensions funds specialized by agents' types. This is true both when there is a complete set of contingent markets, where the risk pooling capabilities of a collective fund are potentially of less interest, and when markets are incomplete. In this last circumstance, a collective fund may help the living agents to share their intragenerational risks. However, we show that the resulting allocation does not Pareto dominate the outcome of individual funds by agent types, and that there are incentives for agents to separate from any collective organization. The Geneva Papers on Risk and Insurance Theory (2001) 26, 5–24. doi:10.1023/A:1011214423209

Suggested Citation

  • Gabrielle Demange & Guy Laroque, 2001. "Social Security with Heterogeneous Populations Subject to Demographic Shocks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 26(1), pages 5-24, June.
  • Handle: RePEc:pal:genrir:v:26:y:2001:i:1:p:5-24
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    Cited by:

    1. Beetsma, Roel M.W.J. & Romp, Ward E. & Vos, Siert J., 2012. "Voluntary participation and intergenerational risk sharing in a funded pension system," European Economic Review, Elsevier, vol. 56(6), pages 1310-1324.
    2. Roel Beetsma & Ward Romp, 2013. "Participation Constraints in Pension Systems," Tinbergen Institute Discussion Papers 13-149/VI, Tinbergen Institute.
    3. De Menil, Georges & Murtin, Fabrice & Sheshinski, Eytan & Yokossi, Tite, 2016. "A rational, economic model of paygo tax rates," European Economic Review, Elsevier, vol. 89(C), pages 55-72.

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