IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Risk Return and Portfolio Allocation under Alternative Pension Systems with Imperfect Financial Markets

Author Info

Listed author(s):
  • Cerny, Ales
  • Miles, David K

Abstract

This Paper uses stochastic simulations on calibrated models to assess the steady state impact of different pension arrangements in an environment where financial markets are less than perfect. Surprisingly little is known about the optimal split between funded and unfunded systems when there are sources of uninsurable risk that are allocated in different ways by different types of pension system and where there are imperfections in financial markets (eg transaction costs or adverse selection). This Paper calculates the expected welfare of agents in different economies where in the steady state the importance of unfunded state pensions differs. We estimate how the optimal level of unfunded state pensions depends on rate of return and income risks and also upon the actuarial fairness of annuity contracts. We focus on the case of Japan where ageing is rapid and unfunded pensions are currently generous.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2779
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2779.

as
in new window

Length:
Date of creation: May 2001
Handle: RePEc:cpr:ceprdp:2779
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


Keywords: Annuities; Demographics; Pensions; Portfolio Allocation; Risk-Sharing;

Find related papers by JEL classification:

  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
  • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
  • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
  • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2001. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 321-370 National Bureau of Economic Research, Inc.
  2. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
  3. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
  4. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1.
  5. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-732, August.
  6. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
  7. José-Víctor Ríos-Rull, 1996. "Life-Cycle Economies and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 465-489.
  8. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 225-251.
  9. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
  10. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  11. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-227, May.
  12. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
  13. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
  14. John Y. Campbell & João F. Cocco & Francisco J. Gomes & Pascal J. Maenhout, 2001. "Investing Retirement Wealth: A Life-Cycle Model," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 439-482 National Bureau of Economic Research, Inc.
  15. Mitchell, Olivia S & Zeldes, Stephen P, 1996. "Social Security Privatization: A Structure for Analysis," American Economic Review, American Economic Association, vol. 86(2), pages 363-367, May.
  16. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  17. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters,in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc.
  18. Martin Feldstein & Elena Ranguelova, 2001. "Accumulated Pension Collars: A Market Approach to Reducing the Risk of Investment-Based Social Security Reform," NBER Chapters,in: Tax Policy and the Economy, Volume 15, pages 149-166 National Bureau of Economic Research, Inc.
  19. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 275-298.
  20. Mankiw, N Gregory, 1985. "Consumer Durables and the Real Interest Rate," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 353-362, August.
  21. Martin Feldstein & Elena Ranguelova & Andrew Samwick, 2001. "The Transition to Investment-Based Social Security When Portfolio Returns and Capital Profitability Are Uncertain," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 41-90 National Bureau of Economic Research, Inc.
  22. Martin Feldstein, 2009. "Reducing the Risk of Investment-Based Social Security Reform," NBER Chapters,in: Social Security Policy in a Changing Environment, pages 201-218 National Bureau of Economic Research, Inc.
  23. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
  24. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
  25. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
  26. Robert C. Merton, 1983. "On the Role of Social Security as a Means for Efficient Risk Sharing in an Economy Where Human Capital Is Not Tradable," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 325-358 National Bureau of Economic Research, Inc.
  27. Hans-Werner Sinn, 1999. "Pension Reform and Demographic Crisis: Why a Funded System is Needed and why it is not Needed," CESifo Working Paper Series 195, CESifo Group Munich.
  28. Ranguelova, Elena & Feldstein, Martin S., 2000. "Accumulated Pension Collars: A Market Approach to Reducing The Risk of Investment-Based Social Security Reform," Scholarly Articles 10456097, Harvard University Department of Economics.
  29. Deborah Roseveare & Willi Leibfritz & Douglas Fore & Eckhard Wurzel, 1996. "Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries," OECD Economics Department Working Papers 168, OECD Publishing.
  30. repec:cup:macdyn:v:1:y:1997:i:1:p:7-44 is not listed on IDEAS
  31. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  32. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, July.
  33. David Miles & Allan Timmermann, 1999. "Risk sharing and transition costs in the reform of pension systems in Europe," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 251-286, October.
  34. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
Full references (including those not matched with items on IDEAS)

The CitEc project has not yet found citations to this item.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2779. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.