American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Social Security Investment in Equities
American Economic Review
vol. 93,
no. 4, September 2003
(pp. 1047–1074)
Abstract
This paper explores the general-equilibrium impact of social security portfolio diversification into private securities, either through the trust fund or private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment, and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions. (JEL H55)Citation
Diamond, Peter, and John Geanakoplos. 2003. "Social Security Investment in Equities." American Economic Review, 93 (4): 1047–1074. DOI: 10.1257/000282803769206197JEL Classification
- H55 Social Security and Public Pensions
- G11 Portfolio Choice; Investment Decisions