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Intergenerational Insurance

Author

Listed:
  • Francesco Lancia
  • Alessia Russo
  • Tim Worrall

Abstract

How should successive generations insure each other when the young can default on previously promised transfers to the old? This paper studies intergenerational insurance that maximizes the expected discounted utility of all generations subject to participation constraints for each generation. If complete insurance is unattainable, the optimal intergenerational insurance is history dependent even when the environment is stationary. The risk from a generational shock is spread into the future with periodic “resetting.” If we interpret intergenerational insurance in terms of debt, the fiscal reaction function is nonlinear and the risk premium on debt is lower than the risk premium with complete insurance.

Suggested Citation

  • Francesco Lancia & Alessia Russo & Tim Worrall, 2024. "Intergenerational Insurance," Journal of Political Economy, University of Chicago Press, vol. 132(10), pages 3500-3544.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/730206
    DOI: 10.1086/730206
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    References listed on IDEAS

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    1. Zheng Song & Kjetil Storesletten & Yikai Wang & Fabrizio Zilibotti, 2015. "Sharing High Growth across Generations: Pensions and Demographic Transition in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 1-39, April.
    2. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
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