Intergenerational risk sharing in closing pension funds

Tim J. Boonen, Anja De Waegenaere

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We model intergenerational risk sharing in closing funded pension plans. Specifically, we consider a setting in which in each period, the pension fund's investment and indexation policy is the outcome of a bargaining process between representatives of the then living generations. Because some generations might be under- or overrepresented in the board, we use the asymmetric Nash bargaining solution to allow for differences in bargaining powers. In a numerical study, we compare the welfare that the generations derive from the outcome of this repeated bargaining to the welfare that they would derive if a social planner's optimal policy would instead be implemented. We find that as compared to the social optimum, older generations benefit substantially from the repeated bargaining, even if all generations are equally well-represented in the board. If older generations are relatively over-represented, as is sometimes argued, these effects are attenuated. (C) 2017 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)20-30
JournalInsurance: Mathematics & Economics
Volume74
DOIs
Publication statusPublished - May 2017

Keywords

  • Defined benefit
  • Dynamic bargaining
  • Asymmetric Nash bargaining solution
  • Pension funds
  • intergenerational risk sharing

Cite this

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abstract = "We model intergenerational risk sharing in closing funded pension plans. Specifically, we consider a setting in which in each period, the pension fund's investment and indexation policy is the outcome of a bargaining process between representatives of the then living generations. Because some generations might be under- or overrepresented in the board, we use the asymmetric Nash bargaining solution to allow for differences in bargaining powers. In a numerical study, we compare the welfare that the generations derive from the outcome of this repeated bargaining to the welfare that they would derive if a social planner's optimal policy would instead be implemented. We find that as compared to the social optimum, older generations benefit substantially from the repeated bargaining, even if all generations are equally well-represented in the board. If older generations are relatively over-represented, as is sometimes argued, these effects are attenuated. (C) 2017 Elsevier B.V. All rights reserved.",
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Intergenerational risk sharing in closing pension funds. / Boonen, Tim J.; De Waegenaere, Anja.

In: Insurance: Mathematics & Economics, Vol. 74, 05.2017, p. 20-30.

Research output: Contribution to journalArticleScientificpeer-review

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AB - We model intergenerational risk sharing in closing funded pension plans. Specifically, we consider a setting in which in each period, the pension fund's investment and indexation policy is the outcome of a bargaining process between representatives of the then living generations. Because some generations might be under- or overrepresented in the board, we use the asymmetric Nash bargaining solution to allow for differences in bargaining powers. In a numerical study, we compare the welfare that the generations derive from the outcome of this repeated bargaining to the welfare that they would derive if a social planner's optimal policy would instead be implemented. We find that as compared to the social optimum, older generations benefit substantially from the repeated bargaining, even if all generations are equally well-represented in the board. If older generations are relatively over-represented, as is sometimes argued, these effects are attenuated. (C) 2017 Elsevier B.V. All rights reserved.

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