Economics Working Papers
Publication Date
11-2018
Number
18018
Abstract
Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme is often described as an “original sin”: It helps the current generation of retirees but hurts future generations because they are forced to save via a return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the “paternalistically motivated forced savings” component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results informthe debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.
JEL Classification
H55, D91, D03, E6
Version History
Original Release Date: November 2018
Departments
Department of Economics, Iowa State University
File Format
application/pdf
Length
43 pages
Recommended Citation
Andersen, Torben M.; Bhattacharya, Joydeep; and Gestsson, Marias H., "Pareto-improving transition to fully funded pensions under myopia" (2018). Economics Working Papers: Department of Economics, Iowa State University. 18018.
https://lib.dr.iastate.edu/econ_workingpapers/68
