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Intragenerational externalities and intergenerational transfers

Published online by Cambridge University Press:  01 June 2012

MARTIN KOLMAR  and
VOLKER MEIER
MARTIN KOLMAR*
Affiliation:
University of St. Gallen and CESifo (Kolmar), University of Munich, Ifo Institute for Economic Research and CESifo (Meier)
VOLKER MEIER*
Affiliation:
University of St. Gallen and CESifo (Kolmar), University of Munich, Ifo Institute for Economic Research and CESifo (Meier)
*
*Martin Kolmar, Institute of Public Finance and Fiscal Law, University of St. Gallen, Varnbüelstrasse 19, CH-9000, St. Gallen, Switzerland. Phone: + + 41-(0)71-224-2535, Fax: + + 41-(0)71-224-2670, E-mail: martin.kolmar@unisg.ch
†Corresponding author. Volker Meier, Department of Economics, University of Munich, Schackstr. 4, D-80539 Munich, Germany. Phone: + + 49-(0)89-2180-6261, E-mail: Volker.Meier@lrz.unimuenchen.de
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Abstract

In an environment with asymmetric information and intragenerational externalities, the implementation of a first-best efficient Clarke–Groves–Vickrey mechanism may not be feasible if it has to be self-financing. By using intergenerational transfers, the arising budget deficit can be covered in every generation only if the initial allocation is not dynamically efficient. While introducing a pay-as-you-go scheme without addressing the externality already yields a Pareto improvement, further welfare gains can be captured by using the additional resources to achieve a perfect internalization.

Keywords

H23H55D82Pay-as-you-goexternalitiesmechanism designadverse selection
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 4 , October 2012 , pp. 531 - 548
Copyright
Copyright © Cambridge University Press 2012

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