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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

Suggested Citation

  • Piero Gottardi & Felix Kubler, 2004. "Ex Ante Optimality and Social Security," 2004 Meeting Papers 626, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:626

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    References listed on IDEAS

    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    3. Onsong Shin & Michael R. Baye, 1999. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 89(3), pages 691-693, June.
    4. Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 155-179, April.
    5. Avinash Dixit, 1999. "Strategic Behavior in Contests: Reply," American Economic Review, American Economic Association, vol. 89(3), pages 694-694, June.
    6. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    7. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    8. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-898, December.
    9. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    10. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-362, March.
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    Cited by:

    1. Francisco Gomes & Alexander Michaelides & Valery Polkovnichenko, 2009. "Quantifying the Distortionary Fiscal Cost of ‘The Bailout’," Working Papers 2009-6, Central Bank of Cyprus.
    2. Francisco Gomes & Alexander Michaelides, 2008. "Asset Pricing with Limited Risk Sharing and Heterogeneous Agents," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 415-448, January.

    More about this item


    Intergenerational Risk Sharing; Social Security; Ex Ante Optimality; Complete Markets;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions


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