Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263948 
Year of Publication: 
2022
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2022-028/VI
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper examines the optimal allocation of risk across generations whose savings mix is subject to illiquidity in the form of uncertain trading costs. We use a stylised two-period OLG framework, where each generation makes a portfolio allocation decision for retirement, and show that illiquidity reduces the range of transferable shocks between generations and thus lowers the benefits of risk-sharing. Higher illiquidity then may justify higher levels of risk sharing to compensate for the trading friction. We still find that a contingent transfers policy based on a reasonably parametrised savings portfolio with liquid and illiquid assets increased aggregate welfare.
Subjects: 
intergenerational risk sharing
(il)liquidity
stochastic overlapping generations
funded pension plan
JEL: 
G11
G23
E21
H55
Document Type: 
Working Paper

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