Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/78394 
Year of Publication: 
2000
Series/Report no.: 
Bonn Econ Discussion Papers No. 8/2000
Publisher: 
University of Bonn, Bonn Graduate School of Economics (BGSE), Bonn
Abstract: 
We analyze the interaction between risk sharing and capital accumulation in a stochastic OLG model with production. We give a complete characterization of interim Pareto optimality. Our characterization also subsumes equilibria with a PAYG social security system. In a competitive equilibrium interim Pareto optimality is equivalent to intergenerational exchange efficiency, which in turn implies dynamic efficiency. Furthermore, dynamic efficiency does not rule out a Pareto-improving role for a social security system. Social security can provide insurance against macroeconomic risk, namely aggregate productivity risk in the second period of life (old age) through dynamic risk sharing. We briefly relate our results to models without uncertainty where the notions of exchange efficiency, dynamic efficiency and interim Pareto optimality are all equivalent in a competitive equilibrium.
Subjects: 
Stochastic OLG Model
Dynamic Efficiency
Interim Pareto Optimality
Social Security
Risk Sharing
JEL: 
D61
H55
Document Type: 
Working Paper

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