Financing Retirement in Europe: Public Sector Reform and Financial Market Development
Research Training Network
Summary
The research undertaken by the network will be highly original in that it combines the latest techniques of financial economics and public economics to address the concrete questions of institutional design posed by reforming the system of retirement funding in Europe. It will carry the study of retirement finance beyond the insights afforded by traditional tools (classic overlapping generations (OLG) models and demographic simulation) in order to obtain policy conclusions regarding specific institutional features of pension finance. Specifically, this will involve applying recent developments in dynamic portfolio analysis in the presence of market frictions, political economy, and principal/agent analysis in complicated stochastic environments.
While some of these developments have begun to be applied to the study of U.S. pension reform (Campbell and M. Feldstein (2001)) many important methodological problems remain to be solved. Furthermore, increasing realism also implies that the modelling should incorporate the important features of the relevant institutional environment. Thus the European focus of our network will lead us to certain modelling choices that will oblige us to break methodological ground on several fronts. While our network does not follow the rigid form of a tightly planned project, there is considerable congruence in the scientific contributions and agendas of the members. These can be grouped according to three broad topics: Pensions growth and risk bearing; Horizontal equity, integration and political economy; and Pension reform and the development, efficiency and regulation of investment based pensions.
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Summary