families and social security abstract the present paper quantifies the importance of family insurance for the analysis of social security we therefore augment the standard overlapping generations model with idiosyncratic labor productivity and longevity risk in that we account for gender and marital status we simulate the abolition of pay as you go pension payments calculate the resulting intergenerational welfare changes and isolate aggregate efficiency effects for singles and families by means of compensating transfers we find that abolishing social security creates significant efficiency losses which are substantially higher for singles compared to married couples a decomposition of the efficiency loss reveals that this difference can be almost exclusively attributed to the insurance role of the family with respect to longevity risk neglecting differences in family structure when studying the privatization of social security one overestimates the long run change in the capital stock by about 40 percent the decline in labor supply by about 30 percent and the aggregate efficiency loss by even 36 percent given rising divorce rates and less stable marriages in almost all western societies our results also indicate that social security should not be reduced but strengthened in the future

home production and social security reform this paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study social se curity reforms as such the model dierentiates both consumption goods and labor eort according to their respective roles in home production and market activities using a calibrated model we nd that eliminating the current pay as you go social security system has important implications for both labor supply and consumption decisions and that these decisions are in uenced by the presence of a home production technology comparing our benchmark economy to one with dierentiated goods but no home production we nd that eliminating social security bene ts generates larger welfare gains in the presence of home produc tion this result is due to the self insurance aspects generated by the presence of home production comparing our economy to a one good economy without home production we show that the welfare gains of eliminating social security are magni ed even further these policy analyses suggest the importance of mod eling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production

intertemporal labor supply and human capital accumulation we solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect the human capital accumulation effect renders the life cycle path of the shadow wage relatively flat even though wages increase with age hence a rather flat life cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution

the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

pension wealth and household saving evidence from pension reforms in the united kingdom using three major u k pension reforms as natural experiments we investigate the relationship between pension saving and discretionary private savings unlike most differences in differences approaches which rely on average differences between control and treatment group we use economic theory to model the response of each individual household the empirical analysis based on the family expenditure survey uses both time series and cross sectional variation to identify the behavioral response the earnings related tier of the pension scheme is found to have a negative impact on private savings with relatively high substitution elasticities the impact of the flat rate tier is not significantly different from zero jel h55 h91 the relationship between pension wealth and household savings is crucial for important policy issues such as establishing the effects of changes in pension legislation on saving behavior from a theoretical point of view the lifecycle framework suggests that the provision of public benefits after retirement constitutes a negative incentive to accumulate wealth during one s working life quantifying the resulting relationship between pension wealth and saving even within a simple theoretical frame

wealth inequality and collective action abstract we study the effect of inequality in the distribution of endowments of private inputs e g land wealth that are complementary in production with collective inputs e g contribution to public goods such as irrigation and extraction from common property resources on efficiency in a class of collective action problems we focus on characterizing the joint surplus maximizing level of inequality making due distinction between contributors and non contributors in a framework that allows us to consider a wide variety of collective action problems ranging from pure public goods to impure public goods to commons we show that while efficiency increases with greater equality within the groups of contributors and non contributors so long the externalities positive or negative are significant there is an optimal degree of inequality between these groups

leadership by example in the weak link game we investigate the effects of leadership in a four player weak link game a weak link game is a coordination game with multiple pareto ranked nash equilibria because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria we wanted to see whether leadership by example in the form of one player acting publicly before the rest of the group could help groups do better our results suggest that leadership can increase efficiency but is far from being a guarantee of success specifically in a significant number of groups we observed successful leadership and increased efficiency but in most groups efficiency was low despite the efforts of leaders we did not find any difference between voluntary leaders and leaders that are randomly assigned

differential mortality and the progressivity of social security abstract there is a well established negative correlation between earnings and mortality risk using a calibrated general equilibrium macroeconomic model this paper examines how this correlation interacts with the welfare implications of social security s benefit earnings rule my primary findings suggest that the welfare ranking of alternative benefit earnings rules is somewhat sensitive to differential mortality due to their relatively high mortality risk households with unfavorable earnings histories heavily discount the expected utility from old age consumption and therefore do not put much weight on better work retirement consumption smoothing because of this reason social security s benefit earnings rule warrants less redistribution in the presence of differential mortality compared to when mortality risk is uncorrelated to earnings i find that this result continues to hold when household level labor supply distortions are ignored and also when an alternative maximin welfare criterion is considered but not when accidental bequests from the deceased are redistributed to the survivors

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

aging and deflation from a fiscal perspective negative correlations between inflation and demographic aging were observed across developed nations recently to understand the phenomenon from a politico economic perspective we embed the fiscal theory of the price level into an overlapping generations model in the model successive short lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments the model sheds new light on the traditional debate about the burden of national debt because of price adjustments the accumulation of government debt does not become a burden on future generations our analysis reveals that the effects of aging depend on its causes aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate numerical simulation shows that aging over the past 40 years in japan generated deflation of about 0 6 percentage points annually

the effects of differential income replacement and mortality on u s social security redistribution we study redistribution via the u s social security retirement system for cohorts of men born during the second half of the 20th century our focus is on redistribution across race and education groups the cohorts we study are younger than cohorts studied in previous similar research and thus more exposed to recent increases in earnings inequality all else equal this should increase the degree of progressivity of social security redistribution due to the structure of the benefit formula however we find that redistribution is only modestly progressive for individuals born as late as 1980 differential mortality rates across race and education groups are the primary explanation while black white mortality gaps have narrowed some in recent years they remain large and dull progressivity mortality gaps by education level are also large and unlike the gaps by race they are widening which puts additional regressive pressure on social security redistribution

subscription equilibrium with production non neutrality and constrained suboptimality abstract we study a general equilibrium model with a non profit firm producing a public good using private goods as inputs which are financed by voluntary contributions subscriptions of households we analyze policy interventions that increase the public good level at subscription equilibria and show that some of the standard results of the neutrality literature do not survive in our model with many private goods and relative price effects allowed first we show that a redistribution away from a contributor or even a decrease in the total wealth of all contributors while the contributing set of agents remains intact can lead to an increase in the provided level of public good moreover we prove that increasing the production of public good is neither a sufficient nor a necessary condition to increase all households welfare finally we present conditions under which for a generic set of economies well chosen interventions will pareto improve upon a given subscription equilibrium outcome as a consequence a general non neutrality result in terms of utilities holds even if all households are contributors

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

transfers and the weakest link an extension of hirshleifer s analysis abstract with the weakest link social composition function analysed by hirshleifer it is shown that an incentive exists for some agents to transfer resources to others so as to achieve higher quantities of the public good the characteristics of such an equilibrium with transfers are examined together with the implications of differing income distributions for the quantity of the public good some observations are offered as to how well the model can capture co operative behaviour

tax deferred saving accounts heterogeneity and policy reforms abstract tax deferred saving accounts tda are systematically used in many countries in the united states households access to tda exhibits substantial heterogeneity 401 k has a higher contribution limit than ira but only 50 of workers are eligibility for it i developed an overlapping generations model that captures the tax benefits of tda and the heterogeneity in 401 k eligibility to investigate the quantitative impacts of tda on the aggregate economy and their implications on policy reforms experiment results show that ira already provides sufficient tax benefits for most households the effects of providing universal 401 k are relatively insignificant because households who can benefit from 401 k already have access to it on the other hand raising the tda contribution limit allows high income households to increase their use of tda and results in stronger effects on the economy when households use of tda is considered the u s income tax system is less distortionary and the welfare gain from a consumption tax reform is reduced by more than half

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

inequality and inefficiency in joint projects a group of agents voluntarily participates in a joint project in which efforts are not perfectly substitutable the output is divided according to some given vector of shares a share vector is unimprovable if no other share vector yields a higher sum of payoffs when the elasticity of substitution across efforts is two or lower only the perfectly equal share vector is unimprovable and all other vectors can be improved via lorenz domination for higher elasticities of substitution perfect equality is no longer unimprovable our results throw light on the connections between inequality and collective action

factor mobility and customs unions theory the standard theory of customs unions originated with the pathbreaking work of viner 11 viner draws a distinction between the trade creating and the trade diverting effects of customs unions trade creation involves a shift of consumption of the importable good from a high cost domestic producer to a lower cost foreign producer trade diversion however involves a switch from the lowest cost external producers to a higher cost producer viner argues that trade creation improves the home country s welfare and trade diversion dampens it viner s analysis was refined by gehrels 4 lipsey 8 and batra 1 the theory was reexamined in light of unemployment by yu 12 and in the presence of variable returns to scale by choi and yu 3 viner s main results were modified accordingly underlying the standard theory of customs unions is the assumption that factors are perfectly mobile between industries in a given country this assumption simplifies the analysis but cannot be supported by empirical observations it is notable that the two sector trade model has been recently extended to accommodate varying degrees of factor mobility mussa 10 considered the case in which capital is sector specific but labor displays any degree of mobility grossman 5 posited capital immobility but allowed perfect labor mobility casas 2 studied the implications of labor immobility which gives rise to an endogenous wage differential hill and mendez 6 developed a general model which allows any degree of mobility in both factors yu and parai 14 adopted casas approach to examine the gains from trade issues this factor mobility literature has generated many interesting results in the neoclassical trade theory the implications of factor immobility for the customs union theory however remain by and large unexplored the purpose of this paper is to make a modest contribution by considering the customs unions theory in the presence of any degree of mobility of both factors as a secondary contribution we elucidate how the presence of factor immobility makes the extent of factor price differentials

imperfect factor mobility a generalization and synthesis of two sector models of international trade the paper constructs and analyses a two sector model characterized by an endogenous factor price differential resulting from imperfect factor mobility it is shown that various models commonly used in international trade theory are special cases of our model the major conclusions include 1 a demonstration that commodity factor intensity rankings do not alone determine the relationship between endogenous and exogenous variables 2 an indication of the role played by the elasticity of intersectoral factor mobility in determining the effects of exogenous disturbances and 3 a proof that the allocational and distributional effects of factor price differentials must be dissociated from their welfare implications mobiliue imparfaite desfacteurs de production synthese et gmneralisation des modcles a deux secteurs dans la theorie du commerce international ce memoire pr6sente et analyse un modele a deux secteurs caracterise par un differentiel endogene dans le prix des facteurs de production entre secteurs suscite par la mobilit6 imparfaite des facteurs de production on montre que les divers modeles utilises traditionnellement dans la theorie du commerce international sont des cas particuliers du modele presente ici les conclusions principales sont i que l ordonnancement des coefficients d intensite des facteurs pour les differents biens ne suffit pas pour definir le rapport entre les variables exogenes et endogenes ii une indication du role joue par l elasticite de la mobilite des facteurs entre secteurs dans la definition de l impact des chocs exogenes et iii une preuve que les effets d allocation et de repartition des differentiels de prix des facteurs entre secteurs peuvent etre dissocies de leur impact au plan du bien etre

foreign aid and weakest link international public goods an experimental study in this paper we investigate efficiency differences between income and in kind transfers as distribution mechanisms of foreign aid to weakest link international public goods in a laboratory environment we find that if there is relatively small difference in country size then income transfers seem to provide a higher provision of the international public good and thus higher overall welfare level than that of in kind transfers however if there is a large disparity in country size then in kind transfers appear to provide a higher level of ipg provision and higher accompanying global welfare

health insurance reform the impact of a medicare buy in abstract the steady state general equilibrium and welfare consequences of a medicare buy in program optional for those aged 55 64 is evaluated in a calibrated life cycle economy with incomplete markets incomplete markets and adverse selection create a potential welfare improving role for health insurance reform we find that adverse selection eliminates any market for a medicare buy in if it is offered as an unsubsidized option to individual private health insurance the subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0 03 0 18 percent depending on how the program is implemented

weakest link public goods giving in kind or transferring money abstract this paper extends the analysis of weakest link public goods whose level equals the smallest of the agents provision levels by permitting an agent either to increase one s own provision or else augment both one s own provision and that of the other agent s nash equilibria may be either symmetric with agents matching one another s provision or else asymmetric with an in kind transfer by one agent to another an equilibrium with cash transfers but no in kind transfers may be pareto superior to one with only in kind transfers if agents differ in their efficiency then in kind transfers by the low cost agent may dominate a cash transfer the possibility of pareto improving transfers is enhanced as the number of agents increases

imperfect labor mobility and unemployment in ldcs comment in a recent paper in this journal parai and beladi 1997 henceforth pb extend the wellknown harris todaro model to consider imperfect labor mobility they find unambiguous support for protection in the case of a small open economy with unemployment and imperfect labor mobility proposition vii we show that the pb conclusion that the optimal tariff is always positive is incorrect furthermore this note contrasts pb s model with the existing literature on the open economy with unemployment we show that in the limiting case of perfect labor mobility their model does not produce results that economic intuition and the existing literature would lead us to expect we believe that their specification of the elasticity of labor mobility has no economic rationale within the context of the harris todaro framework we briefly explore a simple alternative specification

contests with group specific public goods and complementarities in efforts abstract this paper starts from the observation that in public goods group contests group impact can in general not be additively decomposed into some sum of functions of individual efforts we use a ces impact function to identify the main channels of influence of the elasticity of substitution on the behavior in and the outcome of such a contest we characterize the nash equilibria of this game and carry out comparative static exercises with respect to the elasticity of substitution among group members efforts if groups are homogeneous i e all group members have the same valuation and efficiency within the group the elasticity of substitution has no effect on the equilibrium for heterogeneous groups the higher the complementarity of efforts of that group the lower the divergence of efforts among group members and the lower the winning probability of that group this contradicts the common intuition that groups can improve their performance by solving the free rider problem via higher degrees of complementarity of efforts

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

does social security privatization produce efficiency gains while privatizing social security can improve labor supply incentives it can also reduce risk sharing we analyze a 50 privatization using an overlapping generations model where heterogeneous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty when wage shocks are insurable privatization produces about 18 100 of extra resources for each future household after all transitional losses have been compensated for with lump sum taxes when wages are not insurable privatization reduces efficiency by about 2 400 per future household we check the robustness of these results to different model specifications as well as policy reforms and arrive at several surprising conclusions first privatization performs better in a closed economy where interest rates decline with capital accumulation than in an open economy second privatization also performs better when an actuarially fair private annuity market does not exist third government matching of private contributions on a progressive basis is not very effective at restoring efficiency and can actually cause harm

labor supply elasticity and social security reform abstract previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution ies in labor in this paper we show that the effects of social security reforms on aggregate labor supply are invariant to plausible values of the ies but the effect of such reforms on the profile of hours over the life cycle is highly sensitive to the ies we first establish these results analytically in a simple partial equilibrium setting and then demonstrate their robustness in a general equilibrium model calibrated to match key u s macroeconomic indicators we find that the aggregate effects are similar regardless of the wide range of the values of ies used in calibrated economies however social security reform leads to a large reallocation of hours worked over the life cycle from early years to later working years and the size of this reallocation significantly increases with the ies

education lifetime labor supply and longevity improvements this paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so called ben porath mechanism we set up a life cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation this paper makes two important contributions first we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age second those conditions are decomposed into a ben porath mechanism and a lifetime human wealth effect vs the years to consume effect finally using us and swedish data for cohorts born between 1890 and 2000 we show that our model can match the empirical evidence

fiscal cost of demographic transition in japan abstract this paper quantifies the fiscal cost of demographic transition that japan is projected to experience over the next several decades in a life cycle model with endogenous saving consumption and labor supply in both intensive and extensive margins retirement waves of baby boom generations combined with a rise in longevity and low fertility rates raise the old age dependency ratio to 85 by 2050 the highest among major developed countries and generate a significant budget imbalance as the government faces rising costs of public pension and health and long term care insurance preserving the current level of the transfers will require a major increase in taxation using consumption taxes to balance the government budget the tax rate reaches the maximal value of 48 in late 2070s a pension reform to reduce benefits by 20 results in a peak tax rate of 37 which can be reduced further to 28 if the retirement age is also gradually raised by 5 years

task divisions in teams with complementary tasks abstract a team leader and a team follower non cooperatively produce a team specific public good out of two complementary tasks both team members are identically productive and can contribute to both tasks by moving first the team leader effectively determines the division of the tasks in the team we show that the existence of multiple but finitely many types of task divisions is associated with a non convex leader s budget constraint non convexity generates discontinuities and non monotonicities in the equilibrium provision of the good and also in the follower s utility if incomes are redistributed within the team non monotonicity of the follower s utility motivates the follower to give a cash transfer to the leader having received the cash transfer the leader adopts a task division that compensates the contributions of the follower hence we observe a non cooperative gift exchange with a monetary gift to the leader and a subsequent non monetary reward to the follower through a lighter task allocation these gift exchanges disappear in the presence of infinitely many types of task divisions generated by a continuum of complementary tasks

social security and households saving this paper provides new evidence on the substitutability between private and pension wealth by exploiting the italian pension reform of 1992 we use a difference in difference estimator that exploits the differential effects of the reform on individuals belonging to several yea of birth cohorts and different occupational groups we find convincing evidence that saving rates increase as a result of a reduction in pension wealth by allowing for the possibility that substitutability changes with age we find that substitutability is particularly high and precisely estimated for workers between 35 and 45

understanding the distributional impact of long run inflation the impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices in stationary equilibrium inflation nonlinearly alters the endogenous distributions of income wealth and consumption small departures from zero inflation have the strongest impact three features determine how inflation impacts distributions and welfare financial structure shock persistence and labor supply elasticity when agents can self insure only with money inflation reduces wealth inequality but may raise consumption inequality otherwise inflation reduces consumption inequality but may raise wealth inequality given persistent shocks and an inelastic labor supply inflation may raise average welfare

weakest link public goods giving in kind or transferring money in a sequential game abstract this paper extends the leader follower analysis of a weakest link public good by permitting an agent to provide the good on one s own territory or on another s territory through an in kind transfer an equilibrium with cash transfers followed by in kind transfers from the income recipient may be pareto superior any cash transfers must be from the follower to the leader for welfare to improve

should pensions be progressive abstract the present paper quantitatively characterizes the consequences of rising pension progressivity in an overlapping generations model with idiosyncratic income disability and longevity risk as well as endogenous labor supply at the intensive and extensive margin focusing on the german pension system which is purely earnings related we increase the degree of progressivity and compute the optimal mix between flat and earnings related pensions we find that a flat rate pension share of roughly 30 maximizes aggregate economic efficiency since improved insurance provision dominates higher labor supply distortions disability risk significantly increases the optimal progressivity level while endogenous retirement has important macroeconomic implications since our results are robust for a wide range of parameter specifications they indicate that at least in germany a move towards more redistribution within the pension system is efficient

in praise of inequality public good provision and income distribution abstract it is shown that if all individuals contribute towards the provision of a public good their utilities are equalised even if the income distribution is unequal it may seem that there is then no role for redistributive policy but it is proved that social welfare can be raised by creating sufficient income inequality that only the rich provide public goods