Chapter 6. Intergenerational Risk Sharing

This chapter reviews the literature on intergenerational risk sharing (IRS). We explore to what extent and how a market economy with an appropriate institutional setting can replicate a social planner's solution in models with increasing levels of complexity. In particular, we do this for different combinations of pay-as-you-go and funded pension arrangements, after which we turn to the role of public debt policy in promoting IRS. Existing studies show the potential welfare improvements of IRS. We highlight a number of real-world obstacles that limit the gains from IRS, including transitional issues, labor market distortions, participation constraints, and political factors. This is followed by a review of policy options to promote IRS and to deal with these obstacles. Finally, we identify a number of gaps in the literature on IRS.