The Optimal Design of Funded Pension Plans: Unbundling Financing and Investment
The design of fully funded pension plans is affected by governance and incentive problems, as underlined by the experience of several countries. The analytic perspective of contract theory allows to detect the nature of such problems: pension-fund managers have strong incentives to manipulate market expectations about their capacity through wasteful activities (e.g. marketing). The design of funded pension plans has, thus, to trade-off efficiency losses and gains linked to high-powered incentives associated to the competition among fund managers. By means of a simple theoretical setting, this trade-off is shown to be driven by the integration of financing (contribution collection) and investment (asset allocation and management) activities. A separation of financing and investment allows to centralize the former and allocate collected money to a sector of competitive fund managers, via an auction mechanism. Under contract incompleteness, the quasi-competitive setting of funded pillar is proven to be Pareto-superior to the market of competitive pension funds (integrating financing and investment).
|Date of creation:||Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: via del Santo, 33 - 35122 Padova|
Phone: +39 +49 8274210
Fax: +39 +49 827.4211
Web page: http://www.decon.unipd.it/
More information through EDIRC
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.:
- Olivia S. Mitchell, 1996.
"Administrative Costs in Public and Private Retirement Systems,"
NBER Working Papers
5734, National Bureau of Economic Research, Inc.
- Olivia S. Mitchell, 1998. "Administrative Costs in Public and Private Retirement Systems," NBER Chapters, in: Privatizing Social Security, pages 403-456 National Bureau of Economic Research, Inc.
- Olivia S. Mitchell, . "Administrative Costs in Public and Private Retirement Systems," Pension Research Council Working Papers 96-4, Wharton School Pension Research Council, University of Pennsylvania.
- Martin Feldstein, 2005.
"Structural Reform of Social Security,"
Journal of Economic Perspectives,
American Economic Association, vol. 19(2), pages 33-55, Spring.
- James, Estelle & Ferrier, Gary & Smalhout, James & Vittas, Dimitri, 1999.
"Mutual funds and institutional investments - what is the most efficient way to set up individual accounts in a social security system?,"
Policy Research Working Paper Series
2099, The World Bank.
- Estelle James & Gary Ferrier & James H. Smalhout & Dimitri Vittas, 2000. "Mutual Funds and Institutional Investments: What Is the Most Efficient Way to Set Up Individual Accounts in a Social Security System?," NBER Chapters, in: Administrative Aspects of Investment-Based Social Security Reform, pages 77-136 National Bureau of Economic Research, Inc.
- Estelle James & Gary Ferrier & James Smalhout & Dimitri Vittas, 1999. "Mutual Funds and Institutional Investments: What is the Most Efficient Way to Set Up Individual Accounts in a Social Security System?," NBER Working Papers 7049, National Bureau of Economic Research, Inc.
- Feldstein, Martin, 2005. "Structural Reform of Social Security," Scholarly Articles 2794830, Harvard University Department of Economics.
- Martin Feldstein & Jeffrey B. Liebman, 2001.
NBER Working Papers
8451, National Bureau of Economic Research, Inc.
- Oecd, 2005. "Global Pension Statistics Project: Data Update," Financial Market Trends, OECD Publishing, vol. 2005(1), pages 191-194.
- Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
- Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000.
"Regulating private pension funds’ structure, performance and investments: cross-country evidence,"
14753, University Library of Munich, Germany.
- Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds'structure, performance, and investments : cross-country evidence," Social Protection and Labor Policy and Technical Notes 23302, The World Bank.
- Peter A. Diamond & Peter R. Orszag, 2005. "Saving Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 11-32, Spring.
- Davis, E. Philip, 1998. "Pension Funds: Retirement-Income Security and Capital Markets: An International Perspective," OUP Catalogue, Oxford University Press, number 9780198293040, December.
- Besley, Timothy J. & Prat, Andrea, 2003.
"Pension Fund Governance and the Choice Between Defined Benefit and Defined Contribution Plans,"
CEPR Discussion Papers
3955, C.E.P.R. Discussion Papers.
- Timothy Besley & Andrea Prat, 2003. "Pension fund governance and the choice between defined benefit and defined contribution plans," LSE Research Online Documents on Economics 24853, London School of Economics and Political Science, LSE Library.
- Tim Besley & Andrea Prat, 2003. "Pension fund governance and the choice between defined benefit and defined contribution plans," IFS Working Papers W03/09, Institute for Fiscal Studies.
- repec:rus:hseeco:110831 is not listed on IDEAS
- Eaton, Tim V. & Nofsinger, John R., 2004. "The effect of financial constraints and political pressure on the management of public pension plans," Journal of Accounting and Public Policy, Elsevier, vol. 23(3), pages 161-189.
- Atif Mian, 2008.
"Incentives in Markets, Firms, and Governments,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 24(2), pages 273-306, October.
- Daniel Bergstresser & Mihir A. Desai & Joshua Rauh, 2004. "Earnings Manipulation and Managerial Investment Decisions: Evidence from Sponsored Pension Plans," NBER Working Papers 10543, National Bureau of Economic Research, Inc.
- Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
- Carlo Cottarelli & Luis M. Cubeddu & M. Cangiano, 1998. "Pension Developments and Reforms in Transition Economies," IMF Working Papers 98/151, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:pad:wpaper:0003. 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: (Raffaele Dei Campielisi)
If references are entirely missing, you can add them using this form.