Managing public pension reserves - Part I : evidence from the international experience

Many pension schemes mandated by governments have accumulated large reserves. The management of these funds has a direct effect on financial sustainability, and potential benefit levels. It also has important indirect effects on the overall economy when the funds are large. Part I of this study surveys some of the available cross-country evidence on publicly-managed pension reserves. It is suggested that publicly-managed pension funds 1) are often used to achieve objectives other than providing pensions, 2) are difficult to insulate from political interference, and, 3) tend to earn poor rates of return, relative to relevant indices. These findings are consistent across countries of all types, but returns are especially dismal in countries with poor governance. The experience to date suggests that the rationale for pre-funding, have been seriously undermined by public management of pension reserves. Countries with serious governance problems should probably avoid funding altogether.Banks&Banking Reform,Economic Theory&Research,Public Sector Economics,Non Bank Financial Institutions,National Governance

Compelled to do the right thing

We use a model of opinion formation to study the consequences of some mechanisms attempting to enforce the right behaviour in a society. We start from a model where the possible choices are not equivalent (such is the case when the agents decide to comply or not with a law) and where an imitation mechanism allow the agents to change their behaviour based on the influence of a group of partners. In addition, we consider the existence of two social constraints: a) an external authority, called monitor, that imposes the correct behaviour with infinite persuasion and b) an educated group of agents that act upon their fellows but never change their own opinion, i.e., they exhibit infinite adamancy. We determine the minimum number of monitors to induce an effective change in the behaviour of the social group, and the size of the educated group that produces the same effect. Also, we compare the results for the cases of random social interactions and agents placed on a network. We have verified that a small number of monitors are enough to change the behaviour of the society. This also happens with a relatively small educated group in the case of random interactions.Comment: 8 pages, 9 figures, submitted to EPJ