Regulation of withdrawals in individual account systems

Funded mandatory pension systems based on individual accounts are spreading around the world. With the maturation of those systems, regulating the withdrawal of retirement savings will become increasingly important. Government regulation of withdrawals should mandate the purchase of inflation-indexed life annuities exceeding income available from government welfare programs for the retiree and potential survivors. However, proper functioning of insurance markets does not require annuitizing the entire account balance. Instead, more flexibility for the choice of withdrawals could be permitted for any remaining funds, helping to tailor income streams to individual needs and living arrangements.Pensions&Retirement Systems,Environmental Economics&Policies,Economic Theory&Research,Financial Intermediation,Insurance&Risk Mitigation

Evidence for the J^p=1/2^+ narrow state at 1650 MeV in the photoproduction of KLambda

We have investigated the existence of the J^p=1/2^+ narrow resonance predicted by the chiral soliton model by utilizing the kaon photoproduction process gamma + p --> K^+ + Lambda. For this purpose we have constructed two phenomenological models based on our previous effective Lagrangian model, which are able to describe kaon photoproduction from threshold up to W = 1730 MeV. By varying the mass (width) of an inserted P_{11} resonance from 1620 to 1730 MeV (0.1 to 1 MeV and 1 to 10 MeV) a number of fits has been performed in order to search for the resonance mass. Our result indicates that the most promising candidate mass (width) of this resonance is 1650 MeV (5 MeV). Although our calculation does not exclude the possibility of narrow resonances with masses of 1680, 1700 and 1720 MeV, the mass of 1650 MeV is obtained for all phenomenological models used in this investigation. Variations of the resonance width and $K\Lambda$ branching ratio are found to have a mild effect on the chi^2. The possibility that the obtained result originates from other resonance states is also discussed.Comment: 27 pages, 19 figures, submitted to Phys. Rev.

Dropping Out of Social Security

The liability facing a pay-as-you-go social security system can be calculated in several ways. The exact liability measure chosen can significantly affect the conversion of a public pay-as-you-go system to a system based on individually funded accounts. Most conversions, including that which took place in Chile, as well as in many plans to convert the US system, assume the largest measure, known as the “shutdown liability.” That measure pays many workers who have contributed to the public system more money than the public system is actually worth to them, thereby placing a larger burden on future generations. Other liability measures, though, are hard to implement due to an information asymmetry between the government and individuals about an individual’s skill level. This paper demonstrates that a very simple reform plan –– simply letting people drop out of social security –– generates a truthful revelation equilibrium in which agents reveal private information about their skill level. The new assumed liability measure can be as little as half of the shutdown liability as the new measure more accurately assigns a liability for each individual based on their true value of remaining in social security. A smaller liability, therefore, is passed to future generations which also generates quicker transition paths. Moreover, interestingly, the drop out method also does a better job of protecting the welfare of the initial elderly when general revenue is used to pay for the transition. Simulation evidence is provided using a large-scale lifecycle simulation model that allows for heterogeneous skill levels. The evidence demonstrates the importance of the dropping out approach relative to the traditional conversion method that assumes the shutdown liability.

Stubborn Learning

The paper studies a specific reinforcement learning rule in two-player games when each player faces a unidimensional strategy set. The essential feature of the rule is that a player keeps on incrementing her strategy in the same direction if and only if her utility increases. The paper concentrates on games on the square [0; 1] x [0; 1] with bilinear payoff functions such as the mixed extensions of 2 x 2 games. It studies the behavior of the system in the interior as well as on the borders of the strategy space. It precisely exhibits the trajectories of the system and the asymptotic states for symmetric, zero-sum, and twin games.

Tax incentives, bequest motives and the demand for life insurance: evidence from Germany

Life insurance, in particular whole life insurance, plays an important role for private saving in Germany. Whole life insurance combines the insurance against uncertain death with a savings plan. Accordingly, a stylized model of life-cycle behavior would predict that whole life insurance purchases respond to both bequest motives and the tax advantages of life insurance compared with other forms of saving. Using data from the German Consumer Expenditure Survey (EVS), the paper shows that tax advantages and bequest motives indeed have an important impact on life insurance demand in Germany, if the empirical specification explicitly recognizes the censoring of life insurance face values.

Tax Incentives, Bequest Motives, and the Demand for Life Insurance: Evidence from two Natural Experiments in Germany

Whole life insurance plays an important role in household saving. However, empirical evidence on its determinants is scarce. This paper studies two natural experiments to identify the effects of tax incentives and bequest motives on life-insurance demand. An unanticipated tax reform in 2000 halved the tax exemption limit for capital income in Germany. We document that the demand for life insurance reacted strongly to this change. With regard to bequest motives, we analyze the demand for life insurance in the former German Democratic Republic (GDR). Relative to market-based economies, the socialist GDR can be viewed as an experimental institutional setting where life-insurance demand was not influenced by tax considerations which allows us to isolate bequest motives while controlling for life-cycle and precautionary motives. We find a significantly higher ownership probability among households with children and a high regard for the family, confirming bequest motives in life-insurance demand.savings, life insurance, capital income taxation, bequests

The weak electroweak phase transition

We present a detailed analysis of the phase transition in the standard model at finite temperature. Using an improved perturbation theory, where plasma masses are determined from a set of one-loop gap equations, we evaluate the effective potential $V_{eff}(\varphi,T)$ in next-to-leading order, i.e., including terms cubic in the gauge coupling $g$, the scalar self-coupling $\lambda^{1/2}$ and the top-quark Yukawa coupling $f_t$. The gap equations yield a non-vanishing magnetic plasma mass for the gauge bosons, originating from the non-abelian self-interactions. We discuss in detail size and origin of higher order effects and conclude that the phase transition is weakly first-order up to Higgs masses of about $70\ GeV$, above which our calculation is no longer self-consistent. For larger Higgs masses even an approximation containing all $g^4$ contributions to $V_{eff}$ is not sufficient, at least a full calculation to order $g^6$ is needed. These results turn out to be rather insensitive to the top-quark mass in the range $m_t=100\ -\ 180\ GeV$. Using Langer's theory of metastability we calculate the nucleation rate of critical droplets and discuss some aspects of the cosmological electroweak phase transition.Comment: LaTeX, 45 pages, 13 figures [not included, can be sent upon request],DESY 93-02