Hostname: page-component-78c5997874-dh8gc Total loading time: 0 Render date: 2024-11-11T08:38:25.071Z Has data issue: false hasContentIssue false
  • English
  • Français

Defined benefit pension schemes: a welfare analysis of risk sharing and labour market distortions*

Published online by Cambridge University Press:  14 July 2015

NICK DRAPER ,
ED WESTERHOUT  and
ANDRÉ NIBBELINK
NICK DRAPER
Affiliation:
CPB Netherlands Bureau for Economic Policy Analysis, Postbus 80510, 2508GM, Den Haag, The Netherlands (e-mail: d.a.g.draper@cpb.nl)
ED WESTERHOUT
Affiliation:
Department of Economics and Econometrics, University of Amsterdam, and CPB Netherlands Bureau for Economic Policy Analysis (e-mail: e.w.m.t.westerhout@uva.nl)
ANDRÉ NIBBELINK
Affiliation:
CPB Netherlands Bureau for Economic Policy Analysis (e-mail: a.g.h.nibbelink@cpb.nl)
Get access Rights & Permissions [Opens in a new window]

Abstract

Traditionally, collective defined benefit pension schemes have played an important role in the provision of pensions. Various trends such as population ageing put these schemes under serious pressure, however. Whether this is good or bad depends among other things on two factors: one is the value of the risk sharing between generations that is organized by pension schemes, and another is the cost of the distortions of labour supply decisions that these collective schemes imply. This paper constructs a model with overlapping generations of households and a pension scheme to assess the role of these two factors. The paper finds that the welfare gain from intergenerational risk sharing generally dominates the cost of labour supply distortions.

Keywords

D61H55Public pensionsmacro-economic riskwelfare analysis
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Issue 4 , October 2017 , pp. 467 - 484
Copyright
Copyright © Cambridge University Press 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Thanks are due to Leon Bettendorf, Peter Broer, Hans Fehr, Albert van der Horst, Frank de Jong and Bas ter Weel and two referees of this journal for their valuable comments on earlier versions of this paper. Thanks to NETSPAR, Network for Studies on Pensions, Ageing and Retirement, for funding.

References

Auerbach, A. and Kotlikoff, L. (1987) Dynamic Fiscal Policy. Cambridge University Press, New York.Google Scholar
Blundell, R. and Macurdy, T. (1999) Handbook of Labor Economics. volume 3, chapter Labor Supply: A Review of Alternative Approaches. North-Holland, Amsterdam, 1559–1696.Google Scholar
Bodie, Z., Merton, R. C. and Samuelson, W. F. (1992) Labor supply flexibility and portfolio choice in a life cycle model. Journal of Economic Dynamics and Control, 16: 427–449.Google Scholar
Bonenkamp, J. and Westerhout, E. (2014) Intergenerational risk sharing and endogenous labour supply within funded pension schemes. Economica, 81(323): 566–592.Google Scholar
Bovenberg, L., Koijen, R., Nijman, T. and Teulings, C. (2007) Saving and investing over the life cycle and the role of collective pension funds. De Economist, 155: 347–415.Google Scholar
Broer, D. P. (2010) Macroeconomic Risks and Pension Returns. CPB Memorandum 241, CPB.Google Scholar
Campbell, J. and Viceira, L. (2002) Strategic Asset Allocation, Oxford.Google Scholar
Cui, J., Jong, F. de and Ponds, E. (2011) Intergenerational risk sharing within funded pension schemes. Journal of Pension Economics and Finance, 10(01): 1–29.Google Scholar
Demange, G. (2002) On optimality in intergenerational risk sharing. Economic Theory, 20(1): 1–27.Google Scholar
Draper, D. A. G. (2008) Prudence and Robustness as Explanations for Precautionary Savings; an Evaluation. CPB Memorandum 196, CPB.Google Scholar
Draper, N., Nibbelink, A. and Uhde, J. (2013) An Assessment of Alternatives for the Dutch First Pension Pillar the Design of Pension Schemes, CPB Discussion Paper 259, CPB.Google Scholar
Epstein, L. G. and Zin, S. E. (1991) Substitution, risk aversion, and the temporal behavior of consumption and asset returns: An empirical analysis. Journal of Political Economy, 99(2): 263–286.Google Scholar
Flavin, M. A. (1981) The adjustment of consumption to changing expectations about future income. The Journal of Political Economy, 89(5): 974–1009.Google Scholar
Gollier, C. (2008) Intergenerational risk-sharing and risk-taking of a pension fund. Journal of Public Economics, 92(5–6): 1463–1485.Google Scholar
Gomes, F., Kotlikoff, L. J. and Viceira, L. M. (2008) Optimal life-cycle investing with flexible labor supply: A welfare analysis of life-cycle funds. American Economic Review, 98: 297–303.CrossRefGoogle Scholar
Greenwood, J., Hercowitz, Z. and Huffman, G. W. (1988) Investment, capacity utilization, and the real business cycle. American Economic Review, 78(3): 402–417.Google Scholar
Krueger, D. and Kubler, F. (2006) Pareto-improving social security reform when financial markets are incomplete!? The American Economic Review, 96(3): 737–755.Google Scholar
Lumsdaine, R. and Mitchell, O. (1999) Handbook of Labor Economics. volume 3, chapter New Developments in the Economic Analysis of Retirement. Elsevier Science, Amsterdam, 3261–3307.Google Scholar
Supplementary material: File

Draper supplementary material S1

The Appendices

Download Draper supplementary material S1(File)
File 51.3 KB