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Social security and risk sharing


Gottardi, Piero; Kübler, Felix (2011). Social security and risk sharing. Journal of Economic Theory, 146(3):1078-1106.

Abstract

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex-ante Pareto-improving in a stochastic overlapping genera-
tions economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model, financial markets are complete and competitive equilibria are interim Pareto e¢ cient.
Therefore, a welfare improvement can only be obtained if agents' welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing.
We examine the various effects of social security, on the prices of long-lived assets and the stock of capital, and hence on output, wages and risky rates of returns, can
be clearly identified. In addition, we analyze the optimal size of a given social security system as well as its optimal reform.

Abstract

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex-ante Pareto-improving in a stochastic overlapping genera-
tions economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model, financial markets are complete and competitive equilibria are interim Pareto e¢ cient.
Therefore, a welfare improvement can only be obtained if agents' welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing.
We examine the various effects of social security, on the prices of long-lived assets and the stock of capital, and hence on output, wages and risky rates of returns, can
be clearly identified. In addition, we analyze the optimal size of a given social security system as well as its optimal reform.

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9 citations in Web of Science®
11 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2011
Deposited On:09 Mar 2011 08:54
Last Modified:26 Jan 2017 08:47
Publisher:Elsevier
ISSN:0022-0531
Publisher DOI:https://doi.org/10.1016/j.jet.2010.10.014

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