Premium
PRODUCT CHOICE UNDER GOVERNMENT REGULATION: THE CASE OF CHILE'S PRIVATIZED PENSION SYSTEM
Author(s) -
Krasnokutskaya Elena,
Li Yiyang,
Todd Petra E.
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12319
Subject(s) - pension , incentive , government (linguistics) , investment (military) , product (mathematics) , economics , balance (ability) , pension fund , rate of return , business , finance , microeconomics , medicine , linguistics , philosophy , geometry , mathematics , politics , political science , law , physical medicine and rehabilitation
Chile's individual retirement pension accounts system has been a model for many countries. To limit the riskiness of pension investments, Chile required pension fund managers to deliver returns that are not more than 2% below the industry average. We develop and estimate a model of the pension investment market that allows us to study the impact of minimum return regulation. We find that the regulation leads to higher demand for risky investments, creates incentives to offer riskier portfolios, and leads to higher management fees. However, the regulation also stimulates balance accumulation that ultimately reduces the reliance on government support.