Some Propositions on Intergenerational Risk Sharing, Social Security and Self-Insurance

This article describes, within a myopic intergenerational bargaining framework incorporating two discrete periods and binary states of risks, some new aspects regarding the mixture of intergenerational risk sharing and social security. Here, state-dependent utility under mortality risk proves to generate parents’ peculiar indifference curve regarding insurance contract, and self-insurance is shown to play a crucial role on the decision regarding social security holding and intergenerational transfer contract. This peculiar aspect, given for the first time in this article, also derives some novel features of insurance theory under lifetime uncertainty, where the current position in social security contract could adversely affect parents’ decision regarding intergenerational risk sharing with children. In addition, other basic results regarding the sensitivity to default risk and taxation in social security are summarized.