Public Economics: Week 5

Definitions to know:

 Overlapping generations model of funding pensions

o Pay as you go
 “Funded” model of funding pensions
o Defined Benefit and Defined contribution schemes
 The three pillars of national pension design
 Dependency ratio
 “Double taxation” generation

Short answer questions:

What objectives do pensions serve (i.e. what do they insure “against”?). How do pensions
promote equity issues?

Using Barr’s framework of efficient insurance provision, which of the five conditions do
pensions violate and why? Is the public provision of pensions the only means to rectify the three
uncertainties associated with pensions?

Why are pensions in the developed world suffering from an “output time-bomb”? Define why
pensions are suffering from an “output problem”.

What are certain reforms that countries can implement to address the output problem with
pensions? What are some economic and political problems associated with these “certain”
political reforms?

Will the privatization of pensions automatically “solve” the output problem? Under what
conditions would it? Under what conditions would it not?

How may pensions suffer from problems associated with the behavioral critique of “homo
economicus”? Which behavioral critique do pensions fall victim to and why? What are means
in which governments could address this problem?