Working Paper: CEPR ID: DP17720
Authors: Damiaan Chen; Roel Beetsma; Sweder van Wijnbergen
Abstract: Abstract We explore how members of a collective pension scheme can share inflation risks in the absence of suitable financial market instruments. Using intergenerational risk sharing arrangements, risks can be allocated better across the various participants of a collective pension scheme than would be the case in a strictly individual- or cohort-based pension scheme, as these can only lay off risks via existing financial market instruments. Hence, intergenerational sharing of these risks enhances welfare. In view of the sizes of their funded pension sectors, this would be particularly beneficial for the Netherlands and the U.K.
Keywords: pension funds; intergenerational risk sharing; unhedgeable inflation risk; incomplete markets; welfare loss
JEL Codes: C61; E21; G11; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intergenerational risk-sharing arrangements (D15) | welfare enhancement (I38) |
| unhedgeable inflation risk (E31) | welfare losses (D69) |
| intergenerational risk-sharing arrangements (D15) | transfer of risk to retirees (G52) |
| working generations (J19) | risk premium from retirees (J26) |