Optimal Design of the Attribution of Pension Fund Performance to Employees
Journal
The Journal of Risk and Insurance
ISSN
0022-4367
ISSN-Digital
1539-6975
Type
journal article
Date Issued
2013-06
Author(s)
Abstract
The article analyzes risk sharing in a defined contribution pension fund in continuous time. According to a prespecified attribution scheme, the interest rate paid on the employees' accounts is a linear function of the fund's investment performance. For each attribution scheme, the pension fund maximizes the expected utility and the employees derive utility from their savings accounts. It turns out that all Pareto-optimal attribution schemes are characterized by the same optimal participation rate. We derive the total welfare gain that installs from replacing no participation with optimal participation. This welfare gain can be quantified and is substantial for reasonable parameter values.
Language
English
Keywords
Pension Finance
Risk Sharing
Portfolio Theory
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley-Blackwell
Publisher place
Malden
Volume
81
Number
2
Start page
431
End page
468
Pages
38
Subject(s)
Division(s)
Eprints ID
232039