Seminar Papers, Institute for International Economic Studies, Stockholm University
Optimal Actuarial Fairness in Pension Systems - a Note
() and Assar Lindbeck
Abstract: A rationale for a compulsory pension system is that the
government wants to correct supposedly myopic behavior by the individuals.
Given the existence of such a system, we calculate the optimal relation
between marginal contributions and benefits, i.e., the optimal degree of
marginal actuarial fairness, as seen from the point of view of the
individuals or of the government. The following is shown to hold under
general assumptions of individual utility: The optimal degree of marginal
actuarial fairness increases in the rate of return in the social security
system and decreases in the governmentís rate of time preference. If the
governmentís rate of time preference is lower than the individualís, the
government gains more than the individuals by making the system more
actuarially fair. It is also shown that labor supply always increases when
the link between marginal contributions and benefits is strengthened.
Keywords: compulsory pension; marginal actuarial fairness; (follow links to similar papers)
JEL-Codes: H55; (follow links to similar papers)
14 pages, November 3, 1997
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