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Risk, Return and Portfolio Allocation under Alternative Pension Systems with Incomplete and Imperfect Financial Markets

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  • David Miles
  • Ales Cerny

Abstract

This article uses stochastic simulations on a calibrated model to assess the impact of different pension reform strategies where financial markets are less than perfect. We investigate the optimal split between funded and unfunded systems when there are sources of uninsurable risk that are allocated in different ways by different types of pension system when there are imperfections in financial markets. This article calculates the expected welfare of agents of different cohorts under various policy scenarios. We estimate how the optimal level of unfunded, state pensions depends on rate of return and income risks and also upon preferences. Copyright 2006 Royal Economic Society.

Suggested Citation

  • David Miles & Ales Cerny, 2006. "Risk, Return and Portfolio Allocation under Alternative Pension Systems with Incomplete and Imperfect Financial Markets," Economic Journal, Royal Economic Society, vol. 116(511), pages 529-557, April.
    • Handle: RePEc:ecj:econjl:v:116:y:2006:i:511:p:529-557
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    Citations

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    Cited by:

    1. Yvonne Adema, 2010. "Pensions, Debt and Inflation Risk in a Monetary Union," Tinbergen Institute Discussion Papers 10-109/2, Tinbergen Institute.
    2. Jean-Pierre Laffargue, 2009. "Intergenerational Transfers and the Stability of Public Debt with Short-Lived Governments," Mathematical Population Studies, Taylor & Francis Journals, vol. 16(1), pages 79-104.
    3. Gianluca Baio & Laura Magazzini & Claudia Oglialoro & Fabio Pammolli & Massimo Riccaboni, 2005. "Medical Devices: Competitiveness and Impact on Public Health Expenditure," Working Papers CERM 05-2005, Competitività, Regole, Mercati (CERM).
    4. Beetsma, Roel M.W.J. & Bovenberg, A. Lans & Romp, Ward E., 2011. "Funded pensions and intergenerational and international risk sharing in general equilibrium," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1516-1534.
    5. Uryszek Tomasz, 2015. "Long-term Sustainability Of Public Finance In The Central And Eastern EU Member States / Długoterminowe Zrównoważenie Finansów Publicznych w Krajach Europy Środkowej i Wschodniej Należących Do Ue," Comparative Economic Research, Sciendo, vol. 18(4), pages 47-61, December.
    6. Barrett, Alan & Kearney, Ide & O'Brien, Martin, 2007. "Quarterly Economic Commentary, Summer 2007," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20072, march.
    7. Martin Stepanek, 2022. "Sectoral Impacts of International Labour Migration and Population Ageing in the Czech Republic," Computational Economics, Springer;Society for Computational Economics, vol. 60(2), pages 375-400, August.
    8. Jean-Pierre Laffargue, 2005. "Demographic transition, intergenerational transfers and the increase in public and national debts," PSE Working Papers halshs-00590826, HAL.
    9. Jean-Pierre Laffargue, 2005. "Demographic transition, intergenerational transfers and the increase in public and national debts," Working Papers halshs-00590826, HAL.
    10. Jean-Pierre Laffargue, 2009. "Intergenerational transfers and the stability of public debt with short-lived governments," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270503, HAL.
    11. Whelan, Shane, 2007. "Valuing Ireland's Pension System," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(2-Summer), pages 55-80.
    12. Roel M. W. J. Beetsma & A. Lans Bovenberg, 2009. "Pensions and Intergenerational Risk‐sharing in General Equilibrium," Economica, London School of Economics and Political Science, vol. 76(302), pages 364-386, April.
    13. Laffargue, Jean-Pierre, 2005. "Demographic transition, intergenerational transfers and the increase in public and national debts," CEPREMAP Working Papers (Docweb) 0509, CEPREMAP.
    14. Jean-Pierre Laffargue, 2009. "Intergenerational transfers and the stability of public debt with short-lived governments," Post-Print halshs-00270503, HAL.
    15. Černý, Aleš & Miles, David & Schmidt, L'Ubomír, 2010. "The impact of changing demographics and pensions on the demand for housing and financial assets," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(3), pages 393-420, July.
    16. Peter Broer, 2012. "Social Security and Macroeconomic Risk in General Equilibrium," CPB Discussion Paper 221.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Sánchez Martín, A. & Jiménez Martín, S. & Robalino, D. & Todeschini, F., 2012. "Labor Income and the Design of Default Portfolios in Mandatory Pension Systems: An Application to Chile," Working Papers 2012-04, FEDEA.
    18. Jan Bonenkamp & Ed Westerhout, 2010. "Intergenerational risk sharing and labour supply in collective funded pension schemes with defined benefits," CPB Discussion Paper 151.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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