Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259896 
Year of Publication: 
2004
Series/Report no.: 
Working Paper No. 2004:27
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
Ageing gives rise to concern about the sustainability of pay-as-you-go pension systems. One reform option suggested is to make the system actuarial by a tight connection between contributions and benefits. The incentives for the individual will then coincide with the interest of the pension collective. However, the individual actions – fertility decisions, working hours, timing of retirement – also contain a collective part not taken into consideration in the individual's utility maximisation, a 1/N problem. As pay-as you-go systems are indexed by growth, the index (rate of return) is influenced by these actions even if the system is 'actuarially fair'. We trace the effects of changes in fertility and early exit/changes in working hours on different generations in an overlapping generation model. The economic model (a stylised model of the economy in aggregate and the pension system) is fitted into a simulation model. We show that the collective effect /external effects are far from negligible. Different measures to cope with these effects are discussed.
Subjects: 
pensions
demographics
external effects
OLG-model
JEL: 
D62
H55
J26
Document Type: 
Working Paper

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