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Social Security with heteregeneous populations subject to demographic shocks

  • Demange, G.
  • Laroque, G.

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

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 97-08.

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Date of creation: 1997
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Handle: RePEc:del:abcdef:97-08
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