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Pay-as-you-go Pension Systems as Incomplete Social Contracts

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  • Andreas Wagener

Abstract

We model a pay-as-you-go (PAYG) pension system as a series of incomplete intergenerational contracts. Each generation pays a pension to its parents as the price for a premortal transferral of economic property rights. The terms of this intergenerational trade are fixed in a social contract, which due to its long-term nature is incomplete and likely to be renegotiated after some of the initial uncertainty has been resolved. In between, however, investments and education efforts have to be carried out which affect the value of the economic resources to be transferred between generations. This set-up creates a number of intergenerational externalities (including a canonical hold-up problem) which may contribute to the explanation of those problems that real-world PAYG public pension systems currently face.

Suggested Citation

  • Andreas Wagener, 1997. "Pay-as-you-go Pension Systems as Incomplete Social Contracts," Volkswirtschaftliche Diskussionsbeiträge 62-97, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  • Handle: RePEc:sie:siegen:62-97
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    More about this item

    Keywords

    Pay-as-you-go Pension Systems; Incomplete Contracts; Social Contracts;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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