Pensionomics - On the Role of PAYGO in Pension Portfolios

Pensionomics puts forward a portfolio perspective on the combination of funded and unfunded pension arrangements. In a second-best type argument it is formally shown that a Pay-As-You-Go pension system can substitute the tradability of human capital: if risk-averse investors were able to directly invest into the present value of future labour income, they would allocate their pension portfolios in both human and physical capital. While this ideal form of diversification can not be implemented due to the imperfection of capital markets, one can design a typical Pay-As-You-Go system in such a way that it allows for the same intertemporal consumption allocations as the first-best solution. This replication works regardless of the demographic development.Therefore, PAYGO should play a key role in optimising the risk-return combinations for old-age savings.

List of contents

The Problem.- Global Aging and Pensionomics.- Methodical Foundation.- The Model.- Tradable Human Capital.- Replication with PAYGO.- The Implications.- Discussion and Assessment.- Conclusion and Further Research.

Summary

Pensionomics puts forward a portfolio perspective on the combination of funded and unfunded pension arrangements. In a second-best type argument it is formally shown that a Pay-As-You-Go pension system can substitute the tradability of human capital: if risk-averse investors were able to directly invest into the present value of future labour income, they would allocate their pension portfolios in both human and physical capital. While this ideal form of diversification can not be implemented due to the imperfection of capital markets, one can design a typical Pay-As-You-Go system in such a way that it allows for the same intertemporal consumption allocations as the first-best solution. This replication works regardless of the demographic development.Therefore, PAYGO should play a key role in optimising the risk-return combinations for old-age savings.

Product details

• Authors: Matthias F Jäkel, Matthias F. Jäkel
• Publisher: Springer, Berlin
• Languages: English
• Product format: Paperback / Softback
• Released: 19.02.2009
• EAN: 9783540325970
• ISBN: 978-3-540-32597-0
• No. of pages: 316
• Dimensions: 155 mm x 20 mm x 17 mm
• Weight: 467 g
• Illustrations: XII, 316 p.
• Series: Lecture Notes in Economics and Mathematical Systems; Lecture Notes in Economics and Mathematical Systems
• Subjects: Social sciences, law, business > Business > Economics; Population, C, aging, Social Policy, macroeconomics, Social & ethical issues, Public Economics, Economics and Finance, Political Economy, Macroeconomics and Monetary Economics, Macroeconomics/Monetary Economics//Financial Economics, Ageing, Age groups: the elderly, population economics, Monetary Economics, Age groups: adults, Management science, Population & demography, Public finance, Public finance & taxation, Demography, Population and Demography