Work

Intergenerational Insurance

Year: 2024

Type: article

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.” If we interpret 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.

Source: Journal of Political Economy

DOI: 10.1086/730206

Authors: Francesco Lancia, Alessia Russo, Tim Worrall

Institutions: Ca' Foscari University of Venice, Centre for Economic Policy Research, University of Padua, University of Edinburgh

Language: English

Topic: Fiscal Policies and Political Economy

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: UK Research and Innovation, Leverhulme Trust, Università degli Studi di Padova, Economic and Social Research Council

Award: G1041540630