Decision-Making on Pension Schemes: Expectation-Formation under Demographic Change

摘要

In the paper, the formation of expectations during decision-making processes on pension schemes is the main focus. Politicians decide on the intergenerational transfer scheme and the young decide on savings. The politicians display Nash-behavior towards future generations of politicians and are the Stackelberg-leaders with the current young as followers. No generation of decision-makers is committed to previous decisions. If the exogenous parameters of the system are constant the benefit rate and the saving rate will become constant within a finite time interval provided a public pension system exists in the stationary-state. Under perfect foresight, a calculation of finite length suffices for the current decision-makers to generate the path of taxes and savings towards the stationary-state. The effects of demographic change can then be calculated as well.