Thursday, July 5, 2012

New papers from the Social Science Research Network

"Recovering an Institutional Memory: The Origins of the Modern Veterans Benefits System, 1914 to 1958"
5 Veterans L. Rev. (2013 Forthcoming)

JAMES D. RIDGWAY, The George Washington University Law School

Tracing statutory and regulatory history in veterans law can be exceptionally difficult. Although judicial review has only been available for a little more than two decades, the modern veterans benefits system evolved -- more by happenstance than design -- from the system that was originally adopted to serve WWI veterans. Tracing key statutory and regulatory provisions to their true origin is not easy because much of the legislative and regulatory history for veterans law provisions in the United States Code and the Code of Federal Regulations is simply incorrect. Moreover, even if a provision were traced past the false origins provided to its true enactment, the language was often copied or adapted from an even older authority. This article provides guidance in understanding the true origins of the modern veterans benefits system and traces many key provisions to their antecedents under the Bureau of War Risk Insurance and the Pension Bureau.

"Social Security, Growth, and Welfare in Overlapping Generations Economies With or Without Annuities"

NEIL BRUCE, University of Washington - Department of Economics
STEPHEN J. TURNOVSKY, University of Washington - Institute for Economic Research, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

We examine the impact of a stylized pay-as-you-go (PAYGO) Social Security program in an economy of overlapping generations with equilibrium growth. We adopt realistic mortality and other demographic assumptions and allow for the presence or absence of full life annuities. In all cases we find that steady state economies with PAYGO Social Security programs grow more slowly than those without. Also, we find that, for steady state economies having the same wage rate at the current time, initial all-inclusive wealth and lifetime expected utility are lower for households newly entering the economy with Social Security, and for all households subsequent. Growth and welfare are lower in economies without annuities, but the quantitative impact depends on how the financial wealth of decedents is distributed across the surviving population. With or without annuities, the presence of a PAYGO Social Security program reduces growth and welfare.

"Pension Funds and Herding Behavior; Reviewing the Controversy in the Academic Debate and Distilling Recommendations for Practitioners"

FRANK JAN DE GRAAF, Hanze University of Applied Sciences, University of Amsterdam - Department of Business Studies (BS)

Within this article we discuss herding behavior of pension funds. Observers have suggested that pension funds are 1) more likely to herd than other (institutional) investors and by some scholars that 2) due to its sheer size, herding behavior of pension funds could have a negative effect on economic stability. We investigate the consistency of the recommendations to practitioners. Findings are that much of the prevailing academic controversy can be aligned by taking into account the specific circumstances under which the arguments hold true. More long term research on the response of pension funds to fads and fashions in investment could further clarify cognitive biases in the investment policies of pension funds. Also a contingency perspective is needed in academic literature if we are to make valuable and applicable recommendations.

"First Time Tragedy...Pooled Registered Pension Plans"

S. B. ARCHER, York University - Osgoode Hall Law School, Koskie Minsky LLP

The Canadian Federal Government has proposed a new private-sector retirement savings scheme to address the widely-recognized under-saving of Canadian employees for retirement. The proposed scheme emphasizes voluntariness in a choice architecture associated with the “nudge” approach to regulation often associated with Cass Sunstein and Richard Thaler. The scheme is critiqued from a public policy perspective and compared to an alternative policy option, expanding a publically-administered occupational retirement savings scheme, the Canada Pension Plan. The author argues that despite evidence that expanding the Canada Pension Plan would be more efficient at achieving policy objectives, the Federal Government has promoted the private-sector scheme instead. The author speculates that reasons for this decision are not strongly rooted in economic or legal arguments, but instead in a political anxiety over mandatory public programs. The author concludes that if experience in other jurisdictions is any indication, the proposed scheme will not meet the stated policy objectives.

"Lifecycle Funds and Wealth Accumulation for Retirement: Evidence for a More Conservative Asset Allocation as Retirement Approaches"
Financial Services Review, Vol. 19, No. 1, Forthcoming

WADE PFAU, National Graduate Institute for Policy Studies (GRIPS)

A line of recent studies cast doubt on the efficacy of the lifecycle investment strategy, which calls for switching into a more conservative investment portfolio as retirement approaches, as a suitable way to provide for the retirement needs of workers with defined-contribution pensions. After comparing simulation outcomes for lifecycle and fixed asset allocation strategies, we determine that the lifecycle strategy can be justified even in a framework including only financial wealth. We find that investors with very reasonable amounts of risk aversion may prefer the lifecycle approach, despite the tendency for aggressive fixed allocation strategies to produce larger expected wealth.

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