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Risk Sharing and Efficiency Implications of Progressive Pension Arrangements *
Author(s) -
Fehr Hans,
Habermann Christian
Publication year - 2008
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2008.00545.x
Subject(s) - economics , allowance (engineering) , pension , welfare , yield (engineering) , labour supply , overlapping generations model , market liquidity , microeconomics , labour economics , econometrics , macroeconomics , finance , operations management , materials science , market economy , metallurgy
This paper aims to quantify the welfare effects of progressive pension arrangements in Germany. Starting from a purely contribution‐related benefit system, we introduce basic allowances for contributions and a flat benefit fraction. Since our overlapping‐generations model takes into account variable labor supply, borrowing constraints as well as stochastic income risk, we can compare the labor supply, the liquidity and the insurance effects of the policy reform. Our simulations indicate that it would be optimal to introduce a flat benefit share of 50 percent and a basic allowance that amounts to 30 percent of average income. Such a reform would yield an aggregate efficiency gain of 3.3 percent of resources.