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Stochastic fertility, moral hazard, and the design of pay-as-you-go pension plans

Author

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  • CREMER, Helmuth
  • GAHVARI, Firouz
  • PESTIEAU, Pierre

Abstract

This paper models a two-period overlapping generations economy in the steady state where the realization of the quantity/quality number of children depends on an initial investment in children and on a random shock. It shows that the implementation of the first-best allocation, in which the effort level is publicly observable, requires a subsidy on the investment in children. There should also be full insurance with respect to second-period consumption and pensions must be invariant to the number of children. On the other hand, when investment is unobservable and one cannot subsidize it, the full insurance property goes away. In this case, pensions must be linked positively to the number of children.
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Suggested Citation

  • CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, 2011. "Stochastic fertility, moral hazard, and the design of pay-as-you-go pension plans," LIDAM Reprints CORE 2324, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2324
    DOI: 10.1093/cesifo/ifr009
    Note: In : CESifo Economic Studies, 57(2), 332-348, 2011
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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