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Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design

Author

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  • Laurence Ball
  • N. Gregory Mankiw

Abstract

This paper examines the optimal allocation of risk in an overlapping-generations economy. It compares the allocation of risk the economy reaches naturally to the allocation that would be reached if generations behind a Rawlsian "veil of ignorance" could share risk with one another through complete Arrow-Debreu contingent-claims markets. The paper then examines how the government might implement optimal intergenerational risk sharing with a social security system. One conclusion is that the system must either hold equity claims to capital or negatively index benefits to equity returns.

Suggested Citation

  • Laurence Ball & N. Gregory Mankiw, 2001. "Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design," Harvard Institute of Economic Research Working Papers 1921, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:1921
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    File URL: http://www.economics.harvard.edu/pub/hier/2001/HIER1921.pdf
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • H0 - Public Economics - - General

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