The pay-as-you-go pension system as fertility insurance and an enforcement device

A PAYGO system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension. In fact, the latter was Bismarck’s historic motive for introducing this system. It is true that the PAYGO system reduces the investment in human capital, but if it is run on a sufficiently small scale, it may nevertheless bring about a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment

Multilevel Sparse Grid Methods for Elliptic Partial Differential Equations with Random Coefficients

Stochastic sampling methods are arguably the most direct and least intrusive means of incorporating parametric uncertainty into numerical simulations of partial differential equations with random inputs. However, to achieve an overall error that is within a desired tolerance, a large number of sample simulations may be required (to control the sampling error), each of which may need to be run at high levels of spatial fidelity (to control the spatial error). Multilevel sampling methods aim to achieve the same accuracy as traditional sampling methods, but at a reduced computational cost, through the use of a hierarchy of spatial discretization models. Multilevel algorithms coordinate the number of samples needed at each discretization level by minimizing the computational cost, subject to a given error tolerance. They can be applied to a variety of sampling schemes, exploit nesting when available, can be implemented in parallel and can be used to inform adaptive spatial refinement strategies. We extend the multilevel sampling algorithm to sparse grid stochastic collocation methods, discuss its numerical implementation and demonstrate its efficiency both theoretically and by means of numerical examples

The Green Paradox

Klimaveränderung; Umweltabkommen; Kritik; Welt

Social Dumping in the Transformation Process

Business representatives and union leaders in highly industrialised countries often accuse the governments of less-developed countries of practising social dumping in the sense of deliberately neglecting work-place safety legislation, co-determination rights and other fringe benefits which define the quality of workplaces. This paper refutes this view by modelling the transition path of a less-developed small open economy that faces transactions costs when trading capital and labour with the rest of the world. It shows that competitive markets and competitive governments choose Pareto efficient transition strategies which are characterised by a sluggish development of market wages and government-imposed social standards.

Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note

This note generalizes the Solow-Stiglitz efficiency condition for natural resources to the problem of fossil fuel extraction with a greenhouse effect. The generalized optimality condition suggests that the greenhouse effect implies overextraction in the sense of leaving future generations a wrongly composed wealth portfolio with too few natural resources relative to man-made capital. This judgment is independent of society’s ethical preferences concerning the well-being of future generations.global warming, resource extraction, Pareto optimality

The pay-as-you-go pension system as fertility insurance and an enforcement device

A PAYGO system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension. In fact, the latter was Bismarck’s historic motive for introducing this system. It is true that the PAYGO system reduces the investment in human capital, but if it is run on a sufficiently small scale, it may nevertheless bring about a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment.Fertility insurance; Human capital investment; Pension system

The Welfare State and the Forces of Globalization

The emergence of the Asian tiger countries and the participation of the ex-communist countries in world trade has reduced the equilibrium price of labor in western Europe and elsewhere. However, the actual price of labor hardly reacts, because the welfare state's minimum replacement incomes are fixed. The rigidity of wages causes pathological overreactions of the European economy in terms of excessive capital exports, excessive immigration and excessive structural change towards the capital intensive export sectors. The overreactions cause unemployment, sluggish growth, a current account surplus and a high export volume, but may prevent gains from trade. Moving from a system of wage replacement incomes to one that pays wage subsidies would enable a more efficient economic reaction that would not jeopardize social goals but bring about more employment, growth and gains from trade.

The European Balance of Payments Crisis: An Introduction

Schulden; Finanzmarktkrise; Schuldenkrise; Europäische Wirtschafts- und Währungsunion

The Welfare State and the Forces of Globalization

The emergence of the Asian tiger countries and the participation of the ex-communist countries in world trade has reduced the equilibrium price of labor in western Europe and elsewhere. However, the actual price of labor hardly reacts, because the welfare state’s minimum replacement incomes are fixed. The rigidity of wages causes pathological overreactions of the European economy in terms of excessive capital exports, excessive immigration and excessive structural change towards the capital intensive export sectors. The overreactions cause unemployment, sluggish growth, a current account surplus and a high export volume, but may prevent gains from trade. To enable a more efficient economic reaction that would not jeopardize social goals but bring about more employment, growth and gains from trade, it is recommended to move the European welfare state from a system that primarily pays wage replacement incomes to one that pays wage subsidies.globalization, unemployment, welfare state