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The optimal design of funded pensions

Greco, Luciano G. (2006) The optimal design of funded pensions. Discussion paper: UBS Pensions Series 043, 567. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

In many countries, pension funds based on individual accounts have been affected by high operating costs. Contract theory helps to unravel the nature of such problems: managers of pension funds have strong incentives to manipulate market expectations about their capacity through wasteful activities (e.g. promotion). Thus, competition among pension funds entails efficiency loses, due to pension savings attraction efforts, as well as gains, related to investments in asset management skills. Regulations capping fees or costs of pension funds worsen market inefficiency, while a public pension fund competing with private ones improves (at least weekly) it. Taking into account political and commitment constraints affecting public institutions, a quasi-competitive pension scheme - centralizing contribution collection, auctioning the right to manage raised money to competitive fund managers, and affording an opting out choice to households -Pareto-dominates (at least weekly) the market of pension funds.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2006 The Author
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, and Operations
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 567
Date Deposited: 19 Jul 2009 19:26
URL: http://eprints.lse.ac.uk/24519/

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