© 2006


On the Role of PAYGO in Pension Portfolios


Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 572)

Table of contents

  1. Front Matter
    Pages I-XII
  2. The Problem

    1. Front Matter
      Pages 1-1
    2. Pages 19-49
  3. The Model

    1. Front Matter
      Pages 51-51
    2. Pages 53-120
    3. Pages 121-169
  4. The Implications

    1. Front Matter
      Pages 171-171
  5. Back Matter
    Pages 251-318

About this book


Pensionomics puts forward a portfolio perspective on the combination of funded and unfunded pension arrangements. In a second-best type argument it is formally shown that a Pay-As-You-Go pension system can substitute the tradability of human capital: if risk-averse investors were able to directly invest into the present value of future labour income, they would allocate their pension portfolios in both human and physical capital. While this ideal form of diversification can not be implemented due to the imperfection of capital markets, one can design a typical Pay-As-You-Go system in such a way that it allows for the same intertemporal consumption allocations as the first-best solution. This replication works regardless of the demographic development.Therefore, PAYGO should play a key role in optimising the risk-return combinations for old-age savings.


Demographic Change Human Capital Old-age savings PAYGO Pensions Portfolio

Authors and affiliations

  1. 1.Otto Beisheim School of Management, Dresdner Bank Chair of FinanceWHUVallendarGermany

Bibliographic information