INTERGENERATIONAL RISK SHARING BY MEANS OF PAY-AS-YOU-GO PROGRAMS - AN INVESTIGATION OF ALTERNATIVE MECHANISMS

A pay-as-you-go (paygo) pension program may provide intergenerational pooling of risks toindividuals´ labor and capital income over the life cycle. By means of a model that providesilluminating closed form solutions, we demonstrate that the magnitude of the optimal paygoprogram and the nature of the underlying risk sharing effects are very sensitive to the chosencombination of risk concepts and stochastic specification of long run aggregate wage incomegrowth. In an additive way we distinguish between the pooling of wage and capital riskswithin periods and two different intertemporal risk sharing mechanisms...