nep-pub New Economics Papers
on Public Finance
Issue of 2005‒10‒29
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Advances in Dynamic Optimal Taxation By Narayana R Kocherlakota
  2. The Optimal Design of Funded Pension Plans: Unbundling Financing and Investment By Luciano Greco

  1. By: Narayana R Kocherlakota
    Date: 2005–10–26
  2. By: Luciano Greco (University of Padua)
    Abstract: The design of fully funded pension plans is affected by governance and incentive problems, as underlined by the experience of several countries. The analytic perspective of contract theory allows to detect the nature of such problems: pension-fund managers have strong incentives to manipulate market expectations about their capacity through wasteful activities (e.g. marketing). The design of funded pension plans has, thus, to trade-off efficiency losses and gains linked to high-powered incentives associated to the competition among fund managers. By means of a simple theoretical setting, this trade-off is shown to be driven by the integration of financing (contribution collection) and investment (asset allocation and management) activities. A separation of financing and investment allows to centralize the former and allocate collected money to a sector of competitive fund managers, via an auction mechanism. Under contract incompleteness, the quasi-competitive setting of funded pillar is proven to be Pareto-superior to the market of competitive pension funds (integrating financing and investment).
    Keywords: Funded pensions, Governance, Auctions
    JEL: D23 D44 D7 D8 H11 H42 H55
    Date: 2005–09

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