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1

Designing benefit rules for flexible retirement: actuarial fairness versus efficiency

100%
Simonovits A.
Kozgazdasagi Szemle (Economic Review)
|
2004
|
vol. 51
|
issue 12
1101-1112
EN
Diamond and Mirrlees (1978), considering disability retirement under conditions of asymmetric information, determined the socially optimal, incentive-compatible benefit-retirement age scheme that does not follow traditional actuarial fairness. Eso and Simonovits (2002) did the same for flexible old-age retirement. In the latter model, individuals (types) have private information about their expected life spans. The government's goal is to design a pension system (a function relating benefits to retirement age) that maximizes a social-welfare function and satisfies the social budget constraint and incentive compatibility constraints: a second-best redistributive solution. This paper replaces the social constraint by type-specific ones and determines the fair second-best solution. The fair solution is, however, frequently inefficient, because it is often Pareto-dominated by the redistributive one.
2

Can everybody win by redistribution? Compulsory insurance and asymmetrical information.

100%
Simonovits A.
Kozgazdasagi Szemle (Economic Review)
|
2006
|
vol. 53
|
issue 10
873-879
EN
Rothschild and Stiglitz (1976) examined primarily neutral insurance (non-redistributive) in a case of asymmetrical information. In their basic model, the insurer is unaware whether the insured is low or high-risk, and so the low-risk individuals have to shoulder an own risk that keeps high-risk individuals from presenting themselves as low-risk (second best solution). The authors also examine, in a model variant, optimum cross-subsidization, but this has been largely overlooked in the literature. This study extends the analysis to the cases of compulsory and redistributive insurance, and shows that for both types it is worth taking out full insurance, but everybody must pay for the average risk. In cases of great risk evasion or great damage, or of the presence of relatively few low-risk individuals, increases the utility not only for the high-risk type, but for the low-risk type as well: the second best redistribution Pareto-dominates the neutral solution.
3

The waste model of decision-making in higher education

51%
Balla K., Kollo J., Simonovits A.
Kozgazdasagi Szemle (Economic Review)
|
2006
|
vol. 53
|
issue 6
485-508
EN
The study extends the familiar Aghion-Blanchard model to a case where delayed adjustment of wages causes firms in the emerging private sector to create jobs in various geographical and employment segments of the economy at temporarily different profit rates and therefore speeds. Assuming two sectors, the authors examine the development of employment, wages, taxes and profits up to the point of full absorption of the shock of systemic change: a far longer period than the actual transition or dismantling of the state sector. Viability depends on the pace of job destruction and the initial shock effect on employment. The temporarily viable paths are influenced at once by benefits, taxation, and any employment subsidies available. It is shown that there exists a subsidy policy leading not only to greater equality, but to higher aggregate employment and total income. The effect of subvention is strongest where job destruction is rapid and benefits are high (a transition such as Hungary's).
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