Intergenerational insurance

Tim Worrall, Francesco Lancia, Alessia Russo

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

How should successive generations insure each other when the young can default on previously promised transfers to the old? This paper studies intergenerational insurance that maximizes the expected discounted utility of all generations subject to participation constraints for each generation. If complete insurance is unattainable, the optimal intergenerational insurance is history-dependent even when the environment is stationary. The risk from a generational shock is spread into the future, with periodic resetting. Interpreting intergenerational insurance in terms of public debt, the fiscal reaction function is nonlinear and the risk premium on debt is lower than the risk premium with complete insurance.
Original languageEnglish
JournalJournal of Political Economy
Volume132
Issue number10
DOIs
Publication statusAccepted/In press - 21 Feb 2024

Keywords / Materials (for Non-textual outputs)

  • intergenerational insurance
  • limited commitment
  • risk sharing
  • stochastic overlapping generations
  • sustainable debt

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