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Ex Ante Optimality and Social Security

  • Piero Gottardi
  • Felix Kubler

We examine the possibility of a Pareto-improving pay-as-you-go social security system, using an ex-ante welfare criterion. Our objective is to identify the conditions under which a suitably designed pay-as-you-go social security system is welfare improving, when markets are complete and competitive equilibria are interim Pareto efficient, in a stochastic overlapping generations economy with long-lived assets and production. In such situation, a welfare improvement can only be obtained with regard to the agents' ex ante welfare, and arise from the possibility of inducing, through social security, an improved level of intergenerational risk sharing. We will examine both the possibility of finding a welfare improvement in the case of an 'ideal' social security system as well as in the case of more specific systems, as defined benefits and defined contributions. The analysis will be carried out in a simple set-up, where the various effects of the introduction of social security, on the prices of long-lived assets and the level of output, can be clearly identified

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 626.

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Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:626
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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