Intergenerational Insurance

Francesco Lancia

doi:10.1086/730206

Intergenerational Insurance

2024-10-01

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DOI：10.1086/730206

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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.

Keywords:

OVERLAPPING GENERATIONS

SOCIAL-SECURITY

DEBT SUSTAINABILITY

MORAL HAZARD

RISK

INSTITUTIONS

SOLVENCY

MODELS

MARKET

US

Intergenerational Insurance

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