A general equilibrium approach to social security

Abstract

This dissertation is concerned with two major aspects of current social security. The first is the long run effect of pay-as-you-go social security on the capital-labor ratio as understood within the context of the standard overlapping generations model with productive capital. The analysis is carried out in both autarky and open settings and is also considered with and without social capital present in the model. It is shown that if steady state solutions exist, then social security will lower the capital-labor ratio. However, it is also demonstrated that even under simple production technology, steady states may not be feasible because of little substitutability between factors. The other major accomplishment is a simple discussion of the role of government in providing disability insurance. An analysis is undertaken to determine factors which led to the public provision of such insurance in 1956. It is shown that, within the context of the model, the private industry would provide less than full insurance, while government would be able to raise the expected welfare of the representative citizen. Finally, the dissertation provides an in-depth analysis of the local structure of overlapping generations models and the economic dynamics of social security. It is seen that social security may introduce instability into an otherwise stable laissez-faire economy.