This chapter begins the analysis of institutional change by examining what we do and do not yet know about the transformation of old age pension institutions. Such an effort requires first that I examine prevailing theories of social welfare and pension reform and test them against rival hypotheses in global data. Doing so accomplishes several objectives. First, it establishes what hypotheses do and do not survive the “hard” test of external validity, and thus diminishes as much as possible the bias involved in generalization of my conclusions from a small (four-country) sample or regional setting (Latin America) to the global population. Second, cross-national quantitative analysis indicates the direction in which theoretical development of causal mechanisms should productively move. Finally, the quantitative analysis lays a foundation for the qualitative cross-national comparisons through which I assess the causal arguments developed in Part II of the book.

As part of the empirical analysis, I introduce in this chapter a measure of institutional change that captures the extent of transformation in the structure of risk-pooling in old age pensions. This measure represents the structural shift from institutional designs based fundamentally on social protection (i.e., risk pooling) toward reliance on market mechanisms and individual self-insurance. This methodology differs in two ways from the more common approach to comparing welfare states either through analysis of spending data or through system-wide institutional variables. First, it captures institutional change as it is experienced at the micro, or individual level.