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Intergenerational risksharing and equilibrium asset prices

Cambell, John Y. and Nosbusch, Yves (2007) Intergenerational risksharing and equilibrium asset prices. Journal of Monetary Economics, 54 (8). pp. 2251-2268. ISSN 0304-3932

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Abstract

In the presence of overlapping generations, a social security system, with contingent taxes and benefits, can affect both asset prices and intergenerational risksharing. In a simple model with two risky factors of production—human capital, owned by the young, and physical capital, owned by all older generations—a social security system that optimally shares risks exposes future generations to a share of the risk in physical capital. Such a system reduces precautionary saving and increases the riskbearing capacity of the economy. Under plausible conditions it increases the riskless interest rate, and lowers the price and risk premium of physical capital.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-moneta...
Additional Information: © 2008 The authors
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 21 Dec 2010 14:13
URL: http://eprints.lse.ac.uk/31036/

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