We ask whether a pay-as-you-go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk. We show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits...

We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model ofSocial Security. We construct an overlapping-generations model with rational-expectations households,idiosyncratic labor income and health risk, profit-maximizing firms, incomplete insurance...

We develop a general equilibrium stochastic OLG model with heterogenous households. Households differ with respect to their productivity. Productivity depends stochastically on parents' unobservable investment in their child's human capital and an aggregate productivity shock. We introduce a...

Pay-as-you-go (PAYG) social security schemes in the OECD countries are facing solvency problems, as people are living longer and birth rates have declined. Postponing the full retirement age (FRA), when retirees are entitled to full pension, has been proposed as a solution. This effectively...

Feldstein [1985] posed the questions of what would be the optimal level of retirement benefit, and what would be the optimal mix between the pay-as-you-go system and the funded pension system under the assumption of an exogenous interest rate. We reconsider the problem with the addition of a...

This paper presents a classical model of economic growth which incorporates class conflict and induced technological change to show how demographic changes can affect future income distribution and production relations in industrialized countries. Specifically, I use an extended real wage...

This paper analyzes a social security policy with public debt in an overlapping generations growth model. In particular, the paper considers a situation in which population aging causes a heavy burden of social security payments where public debt is issued by the government to finance the...

We model the optimal reaction of a public PAYG pension system to demographic shocks. We compare the ex-ante first best and second best solution of a Ramsey planner with full commitment to the outcome under simple third best rules that mimic the pension systems observed in the real world. The...

We analyze the outcome of voting over the contribution to a pay-as-you-go (PAYG) pension system in the presence of financial and demographic shocks. The impact of shocks on pension contributions and benefits replicates major developments of pension systems around the world. A decrease in the...