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The Bright Side of Shiller-Swaps: A Solution to Inter-generational Risk-sharing

Author

Listed:
  • Carlsson, Evert

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Erlandzon, Karl

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

This paper investigates the diversification demand of an agent, who is faced with the alternative to swap aggregate labour-income risk for equity-exposure, through her individual account in a mandatory-pension scheme. The framework for the analysis is a life-cycle model of a borrowing-constrained individual´s consumption- and portfolio-choice in the presence of uncertain labour-income and realistically calibrated tax- and pension systems. Pension benefits stem from both defined benefit and notionally defined contributions part, the latter being indexed to stochastic aggregate labour-income. We show that agents, depending on age and swap premium, agents will be either buyers or sellers of such a swap, and that inter-generational risk sharing can therefore be achieved.

Suggested Citation

  • Carlsson, Evert & Erlandzon, Karl, 2006. "The Bright Side of Shiller-Swaps: A Solution to Inter-generational Risk-sharing," Working Papers in Economics 233, University of Gothenburg, Department of Economics, revised 24 Oct 2006.
    • Handle: RePEc:hhs:gunwpe:0233
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    File URL: http://hdl.handle.net/2077/2683
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    References listed on IDEAS

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    Cited by:

    1. Gabay, Daniel & Grasselli, Martino, 2012. "Fair demographic risk sharing in defined contribution pension systems," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 657-669.

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    More about this item

    Keywords

    Life-cycle; portfolio choice; pensions; Shiller-swap;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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