Health status risks and the efficiency of social security systems

Abstract

We studied the allocative efficiency of a social security system with earning tests focusing on the leisure-work choices of older men. Given empirical findings that health status and social security benefits are the most important determinants of such choices, we incorporated risks with respect to health status into an overlapping-generations model, and analysed how allocative efficiency was changed by the introduction of social security systems. It was found that the effects of a social security system can be broken down into particular categories and that a social security system improves efficiency when the pension system is small. JEL Classification Numbers: H55, 110, E40.