Intergenerational Insurance

descriptionPublicationkeyboard_double_arrow_right Article , Preprint 01 Oct 2024Embargo end date: 01 Apr 2024 United Kingdom, Italy English Publisher:University of Chicago PressJournal:Journal of Political Economy, volume 132, pages 3,500-3,544 (issn: 0022-3808, eissn: 1537-534X,

Copyright policy )Funded by:UKRI | Credit and Labour Market ...

Authors: Francesco Lancia; Russo Alessia; Tim Worrall;

doi: 10.1086/730206 , 10.48550/arxiv.2404.10090

arXiv: 2404.10090

handle: 20.500.11820/623ba209-56bc-4483-88d9-e1bb2057d83c , 10278/5050000

Intergenerational Insurance

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Abstract

How should successive generations insure each other when the young can default on previously promised transfers to the old? This paper studies intergenerational insurance that maximizes the expected discounted utility of all generations subject to participation constraints for each generation. If complete insurance is unattainable, the optimal intergenerational insurance is history-dependent even when the environment is stationary. The risk from a generational shock is spread into the future, with periodic resetting. Interpreting intergenerational insurance in terms of debt, the fiscal reaction function is nonlinear and the risk premium on debt is lower than the risk premium with complete insurance.

61 pages, 7 figures

Countries

United Kingdom, Italy

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Keywords

limited commitment, FOS: Economics and business, sustainable debt, Economics - Theoretical Economics, intergenerational insurance, Theoretical Economics (econ.TH), risk sharing, Intergenerational Insurance, Limited Commitment, Public Debt, Risk Sharing, Stochastic Overlapping Generations, stochastic overlapping generations

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