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Private versus public old-age security

Author

Listed:
  • Barnett, Richard C.
  • Bhattacharya, Joydeep
  • Puhakka, Mikko

Abstract

We compare two institutions head on, a family compact -- a parent makes a transfer to her parent in anticipation of a possible future gift from her children -- with a pay-as-you-go, social security system in a lifecycle model with endogenous fertility wherein children are valued both as consumption and investment goods. Our focus is strictly on the pension dimension of these competing institutions. We show that an optimally-chosen family compact and a social security system cannot co-exist; indeed, the former may be preferred. A strong-enough negative shock to middle-age incomes destroys family compacts. While such a setting might appear ideal for the introduction of a social security system -- as the experience of Europe, circa 1880s, would suggest -- this turns out not to be the case: if incomes are too depressed to allow family compacts to flourish, they are also too low to permit introduction of an optimal social security system.

Suggested Citation

  • Barnett, Richard C. & Bhattacharya, Joydeep & Puhakka, Mikko, 2012. "Private versus public old-age security," ISU General Staff Papers 201209020700001073, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201209020700001073
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    Cited by:

    1. Andersen, Torben M. & Bhattacharya, Joydeep & Gestsson, Marias H., 2021. "Pareto-improving transition to fully funded pensions under myopia," Journal of Demographic Economics, Cambridge University Press, vol. 87(2), pages 169-212, June.
    2. Torben M. Andersen & Joydeep Bhattacharya & Qing Liu, 2021. "Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1008-1030, July.
    3. Monisankar Bishnu & Cagri Kumru, 2020. "A Note on the Annuity Role of Estate Tax - ONLINE SUPPLEMENT," ANU Working Papers in Economics and Econometrics 2020-676, Australian National University, College of Business and Economics, School of Economics.
    4. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Qing, 2020. "Reference-dependent preferences, time inconsistency, and unfunded pensions," ISU General Staff Papers 202004170700001102, Iowa State University, Department of Economics.
    5. Shiyu Li & Shuanglin Lin, 2024. "Social security reforms, capital accumulation, and welfare: A notional defined contribution system vs a modified PAYG system," Journal of Population Economics, Springer;European Society for Population Economics, vol. 37(1), pages 1-34, March.
    6. Alessandro Cigno & Alessandro Gioffré & Annalisa Luporini, 2021. "Evolution of individual preferences and persistence of family rules," Review of Economics of the Household, Springer, vol. 19(4), pages 935-958, December.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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