Document Type
Discussion Paper
Publication Date
7-1-2001
CFDP Number
1314R
CFDP Revision Date
2002-08-01
CFDP Pages
30
Abstract
This paper explores the general equilibrium impact of social security portfolio diversification into private securities, either through the trust fund or private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions.
Recommended Citation
Diamond, Peter A. and Geanakoplos, John, "Social Security Investment in Equities" (2001). Cowles Foundation Discussion Papers. 1574.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1574