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Cover of: Pareto-improving Transition from Pay-as-you-go to Fully Funded Social Security under Uncertain Incomes
Nils Hauenschild

Pareto-improving Transition from Pay-as-you-go to Fully Funded Social Security under Uncertain Incomes

Section: Articles
Volume 57 (2000) / Issue 1, pp. 39-62 (24)
Published 09.07.2018
DOI 10.1628/0015221014006242
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Summary
The possibility of a Pareto-improving transition from a pay-as-you-go to a fully funded pension system is discussed intensively in the literature. In this paper, the problem is analyzed within a standard overlapping generations model of a small open economy with stochastic wages. Applying the criterion of conditional Pareto-efficiency we derive a sufficient condition for the fully funded system to be preferred by all future generations and show that, in contrast to deterministic models with inelastic labour supply, a Pareto-improving abolition of the pay-as-you-go system is possible with probability one.