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Designing benefit rules for flexible retirement: actuarial fairness versus efficiency

100%

Simonovits A.

Kozgazdasagi Szemle (Economic Review)

2004

vol. 51

issue 12

1101-1112

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.

Resolving optimal log-linear pension incentives by numerical means

88%

Alacs P.

Kozgazdasagi Szemle (Economic Review)

2004

vol. 51

issue 11

1029-1047

The author examines such aspects of numerical solutions to the economic models as efficiency, accuracy, error analysis, stability and reliability. Without attempting a full picture of the applicable numerical methods or the advantages and drawbacks of these, the article concentrates on a pension incentive model, complex in its mathematical structure, but interesting economically and numerically. Finally, the author demonstrates the efficacy of numerical methods by applying them to an important economic supposition.

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2 Kozgazdasagi Szemle (Economic Review)

1 Alacs P.

1 Simonovits A.

2 2004

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Designing benefit rules for flexible retirement: actuarial fairness versus efficiency

Resolving optimal log-linear pension incentives by numerical means