PRODUCT CHOICE UNDER GOVERNMENT REGULATION: THE CASE OF CHILE'S PRIVATIZED PENSION SYSTEM

摘要

Chile's individual retirement pension accounts system has been a model for many countries. To limit the riskiness of pension investments, Chile required pension fund managers to deliver returns that are not more than 2% below the industry average. We develop and estimate a model of the pension investment market that allows us to study the impact of minimum return regulation. We find that the regulation leads to higher demand for risky investments, creates incentives to offer riskier portfolios, and leads to higher management fees. However, the regulation also stimulates balance accumulation that ultimately reduces the reliance on government support.