The Social Insurance Paradox

Intergenerational redistribution in a small open economy with endogenous fertility

“…The literature comparing fully funded (FF) and pay-as-you-go (PAYG) financed public-pension systems in small open economies stresses the importance of the Aaron condition (Aaron (1966)) as an empirical measure to decide which system can be expected to lead to a higher long-run welfare. A country with a PAYG system has a higher level of utility than a country with a FF system if the growth rate of total wage income exceeds the interest rate.…”

Political Preferences and the Aging of Populations

“…With respect to the former argument, it is suggested that short-sighted individuals do not save sufficiently for their retirement. Some have suggested that individuals tend to revise their consumption plans in an inconsistent way by using a higher discount rate for the near future than the far future (see Angeletos et al (2001) Samuelson (1958) and Aaron (1966) were among the first to explain why a voting majority would favor a PAYG pension system. Both maintained that overall welfare would be improved by a PAYG saving device in a dynamically inefficient economy where the rate of interest r is smaller than the population growth rate n. In such a situation the internal rate of return i of a PAYG is higher than the real return from capital accumulation.…”

Measurement Issues for Adequacy Comparisons Among Pension Systems

“…By the former, it is hypothesized that individuals accumulate their savings in a risk-free asset at the market return (Creedy et al 1993, Disney 2004. By actuarial equivalence, instead, it is hypothesized that individuals get (a) the market return on savings accumulated in funded pension schemes, and (b) the sum of labor force and productivity growth for savings accumulated in PAYG systems (Samuelson 1958, Aaron 1966. The null solidarity hypothesis is more convenient for our purposes, since it excludes a priori any sort of adequacy-relevant redistribution (poverty, intra-and inter-generational).…”