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Defined benefit or defined contribution?: a study of pension choices

Cocco, Joao F. and Lopes, Paula (2011) Defined benefit or defined contribution?: a study of pension choices. Journal of Risk and Insurance, 78 (4). pp. 931-960. ISSN 0022-4367

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Identification Number: 10.1111/j.1539-6975.2011.01419.x

Abstract

We solve an empirically parameterized life-cycle model of consumption and pension choices to show how expected earnings growth and risk affect the benefits of final-salary defined benefit (DB) pension plans, relative to pension plans that are defined contribution (DC) in nature. We use micro data on the pension choices of individuals to provide evidence consistent with the model predictions: (1) individuals who expect a higher growth rate of earnings are more likely to choose DB final-salary schemes, and (2) individuals who face a higher variance ofpersistentincome shocks are less likely to choose DB final-salary schemes. We control for cohort and age fixed effects in the empirical analysis.

Item Type: Article
Official URL: http://journalofriskandinsurance.org/
Additional Information: © 2011 American Risk and Insurance Association
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J32 - Nonwage Labor Costs and Benefits; Private Pensions
Sets: Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 12 Jan 2012 15:25
Last Modified: 24 Sep 2012 10:51
URI: http://eprints.lse.ac.uk/id/eprint/41388

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