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A Certainty Equivalent Valuation of Social Security Entitlements

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Abstract

This paper computes the certainty equivalent of the United States Social Security in a calibrated life-cycle model when the stock and labor markets are cointegrated. In the baseline calibration, the certainty equivalent of current workers and retirees is found to be 37% lower at the national scale than the sum of expected cash flows discounted at the risk-free rate. The results suggest that the present value of pension entitlements and the transition cost to a funded system may be largely overestimated if not properly risk-adjusted.
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hal-02011400 , version 1 (07-02-2019)

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  • HAL Id : hal-02011400 , version 1

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Sylvain Catherine. A Certainty Equivalent Valuation of Social Security Entitlements. 2015. ⟨hal-02011400⟩

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