IDEAS home Printed from https://ideas.repec.org/p/cpb/discus/176.html
   My bibliography  Save this paper

Intergenerational Risk Sharing in Time-Consistent Funded Pension Schemes

Author

Listed:
  • Ed Westerhout

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Intergenerational risk sharing by funded pension schemes may increase welfare in an ex ante sense. However, it also suffers from a time inconsistency problem. In particular, young generations may be unwilling to start participating in a pension scheme if this requires them to make huge transfers to older generations. This paper explores if limiting the transfers between generations can make a funded pension scheme time-consistent. The paper finds that this is possible indeed in a more or less realistic economic environment; it is not the case in general however. The form of the time-consistent scheme (how strong are the limits to transfers) is found to be very responsive to the economic environment. The time-consistent scheme offers lower welfare than the original time-inconsistent scheme, but higher welfare than a defined-contribution scheme without any intergenerational risk sharing.

Suggested Citation

  • Ed Westerhout, 2011. "Intergenerational Risk Sharing in Time-Consistent Funded Pension Schemes," CPB Discussion Paper 176, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:176
    as

    Download full text from publisher

    File URL: https://www.cpb.nl/sites/default/files/publicaties/download/dp176-intergenerational-risk-sharing-time-consistent-funded-pension-schemes.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. D'Amato, Marcello & Galasso, Vincenzo, 2010. "Political intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 628-637, October.
    2. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boonen, Tim J. & De Waegenaere, Anja, 2017. "Intergenerational risk sharing in closing pension funds," Insurance: Mathematics and Economics, Elsevier, vol. 74(C), pages 20-30.
    2. Chen, Damiaan H.J. & Beetsma, Roel M.W.J. & Broeders, Dirk W.G.A. & Pelsser, Antoon A.J., 2017. "Sustainability of participation in collective pension schemes: An option pricing approach," Insurance: Mathematics and Economics, Elsevier, vol. 74(C), pages 182-196.
    3. Goecke, Oskar, 2018. "Resilience and Intergenerational Fairness in Collective Defined Contribution Pension Funds," Forschung am ivwKöln 7/2018, Technische Hochschule Köln – University of Applied Sciences, Institute for Insurance Studies.
    4. Wang, Suxin & Lu, Yi & Sanders, Barbara, 2018. "Optimal investment strategies and intergenerational risk sharing for target benefit pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 80(C), pages 1-14.
    5. Damiaan Chen & Roel Beetsma & Dirk Broeders, 2015. "Stability of participation in collective pension schemes: An option pricing approach," DNB Working Papers 484, Netherlands Central Bank, Research Department.
    6. Romp, Ward & Beetsma, Roel, 2020. "Sustainability of pension systems with voluntary participation," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 125-140.
    7. Goecke, Oskar, 2013. "Pension saving schemes with return smoothing mechanism," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 678-689.
    8. Bégin, Jean-François, 2020. "Levelling the playing field: A VIX-linked structure for funded pension schemes," Insurance: Mathematics and Economics, Elsevier, vol. 94(C), pages 58-78.
    9. Wang, Suxin & Rong, Ximin & Zhao, Hui, 2019. "Optimal investment and benefit payment strategy under loss aversion for target benefit pension plans," Applied Mathematics and Computation, Elsevier, vol. 346(C), pages 205-218.
    10. Alserda, G.A.G. & Steenbeek, O.W. & van der Lecq, S.G., 2017. "The Occurrence and Impact of Pension Fund Discontinuity," ERIM Report Series Research in Management ERS-2017-008-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tim Worrall & Alessia Russo & Francesco Lancia, 2017. "Sustainable Intergenerational Insurance," 2017 Meeting Papers 319, Society for Economic Dynamics.
    2. Grochulski, Borys & Zhang, Yuzhe, 2011. "Optimal risk sharing and borrowing constraints in a continuous-time model with limited commitment," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2356-2388.
    3. Karine Gobert & Michel Poitevin, 2006. "Non-commitment and savings in dynamic risk-sharing contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 357-372, June.
    4. Christian Calmès, 2005. "Self-Enforcing Labour Contracts and the Dynamics Puzzle," Staff Working Papers 05-1, Bank of Canada.
    5. Alvaro Aguirre, 2017. "Contracting Institutions and Economic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 192-217, March.
    6. Miao, Jianjun & Zhang, Yuzhe, 2015. "A duality approach to continuous-time contracting problems with limited commitment," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 929-988.
    7. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," Econometrica, Econometric Society, vol. 76(4), pages 679-725, July.
    8. Barney Hartman‐Glaser & Hanno Lustig & Mindy Z. Xiaolan, 2019. "Capital Share Dynamics When Firms Insure Workers," Journal of Finance, American Finance Association, vol. 74(4), pages 1707-1751, August.
    9. Tom Krebs & Moritz Kuhn & Mark Wright, 2016. "Insurance in human capital models with limited enforcement," CAMA Working Papers 2016-48, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Schroth, Josef, 2021. "Macroprudential policy with capital buffers," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 296-311.
    11. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).
    12. Ofer Setty, 2019. "Optimal unemployment insurance with monitoring," Quantitative Economics, Econometric Society, vol. 10(2), pages 693-733, May.
    13. Wei, Dong, 2019. "A model of trust building with anonymous re-matching," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 311-327.
    14. Tom Krebs & Moritz Kuhn & Mark L. J. Wright, 2015. "Human Capital Risk, Contract Enforcement, and the Macroeconomy," American Economic Review, American Economic Association, vol. 105(11), pages 3223-3272, November.
    15. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    16. Lagakos, David & Ordoñez, Guillermo L., 2011. "Which workers get insurance within the firm?," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 632-645.
    17. Felix Feng, 2018. "Dynamic Compensation under Uncertainty Shocks and Limited Commitment," 2018 Meeting Papers 159, Society for Economic Dynamics.
    18. Jordi Galí & Thijs van Rens, 2021. "The Vanishing Procyclicality of Labour Productivity [Why have business cycle fluctuations become less volatile?]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 302-326.
    19. Alexander Karaivanov & Benoit Mojon & Luiz Awazu Pereira da Silva & Albert Pierres Tejada & Robert M Townsend, 2024. "Incentive-compatible unemployment reinsurance for the euro area," BIS Working Papers 1180, Bank for International Settlements.
    20. Andrew Snell & Heiko Stuber & Jonathan Thomas, 2018. "Downward Real Wage Rigidity and Equal Treatment Wage Contracts: Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 265-284, October.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpb:discus:176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cpbgvnl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.