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Defined benefit pension schemes: a welfare analysis of risk sharing and labour market distortions*

Published online by Cambridge University Press:  14 July 2015

NICK DRAPER ,
ED WESTERHOUT  and
ANDRÉ NIBBELINK
NICK DRAPER
Affiliation:
CPB Netherlands Bureau for Economic Policy Analysis, Postbus 80510, 2508GM, Den Haag, The Netherlands (e-mail: d.a.g.draper@cpb.nl)
ED WESTERHOUT
Affiliation:
Department of Economics and Econometrics, University of Amsterdam, and CPB Netherlands Bureau for Economic Policy Analysis (e-mail: e.w.m.t.westerhout@uva.nl)
ANDRÉ NIBBELINK
Affiliation:
CPB Netherlands Bureau for Economic Policy Analysis (e-mail: a.g.h.nibbelink@cpb.nl)
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Abstract

Traditionally, collective defined benefit pension schemes have played an important role in the provision of pensions. Various trends such as population ageing put these schemes under serious pressure, however. Whether this is good or bad depends among other things on two factors: one is the value of the risk sharing between generations that is organized by pension schemes, and another is the cost of the distortions of labour supply decisions that these collective schemes imply. This paper constructs a model with overlapping generations of households and a pension scheme to assess the role of these two factors. The paper finds that the welfare gain from intergenerational risk sharing generally dominates the cost of labour supply distortions.

Keywords

D61H55Public pensionsmacro-economic riskwelfare analysis
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Issue 4 , October 2017 , pp. 467 - 484
Copyright
Copyright © Cambridge University Press 2015 

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Footnotes

*

Thanks are due to Leon Bettendorf, Peter Broer, Hans Fehr, Albert van der Horst, Frank de Jong and Bas ter Weel and two referees of this journal for their valuable comments on earlier versions of this paper. Thanks to NETSPAR, Network for Studies on Pensions, Ageing and Retirement, for funding.

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