On Consumption-Indexed Public Pension Plans
Using the known result that life-cycle investors will optimally hold portfolios whose returns are perfectly correlated with aggregate consumption, this paper uses a simple intertemporal general equilibrium model to explore the merits and feasibility of pension plans where both accumulations and benefits are linked to aggregate per capita consumption. Although the analysis is made within the framework of a public pension plan, it applies equally well to organized private pension plans where participation is virtually mandatory and where individually designed programs are not practical. An additional feature of the plans examined is that they provide for life annuities during both the accumulation and retirement phases of the life cycle.
|Date of creation:||Jun 1982|
|Date of revision:|
|Publication status:||published as Merton, Robert C. "On Consumption-Indexed Public Pension Plans." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1984), pp. 259-290.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- R. C. Merton, 1970.
"Optimum Consumption and Portfolio Rules in a Continuous-time Model,"
58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
- Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
- Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- P. S. Dasgupta, 1969. "On the Concept of Optimum Population," Review of Economic Studies, Oxford University Press, vol. 36(3), pages 295-318.
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