Endogenous Fertility, Externalities, and Efficiency in Old-Age Pension Systems

Due to falling fertility and rising life expectancies, a serious financial crisis is looming over the pay-as-you-go pension systems established in many developed countries. The present study demonstrates that falling fertility can partly be explained by the fiscal externalities arising from the bad design of established pay-as-you-go pension systems. It is shown that these externalities also arise in illdesigned funded systems and that for both types of pension systems one can construct variants that internalize these externalities and result in a Pareto improvement.

Langlois, Richard N., Tony Fu-Lai Yu, and Paul Robertson (eds.): Alternative Theories of the Firm.