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Academic year 2018/2019

Course ID
Teaching staff
Elsa Maria Fornero (Lecturer)
Andre Masson (Lecturer)
Stefania Basiglio (Tutor)
2nd year
Course disciplinary sector (SSD)
SECS-P/02 - politica economica
Formal authority
Type of examination
Basic knowledge of both Micro and Macroeconomics

Sommario del corso


Course objectives

Content and objectives.  Pension systems are designed to meet three main objectives: to allow people to smooth consumption in their life cycle; to prevent poverty in old age; to establish a compact among generations. These goals, in their turn, are meant to insure individual risk, to overcome individual planning limitations and to provide some sharing for aggregate risks. Within the first category of risks, longevity and earnings risks are predominant; within the second, myopia and time inconsistency have to be addressed; within the third, demographic, economic and political risks should be as much diversified as possible. 


Starting from this framework, the course aims at placing European pension systems and reforms in the context of the economic theory of households’ savings, where imperfect and incomplete (financial and insurance) markets make room for the state to play an insurer’s role, besides its traditional redistributive tasks.  The logic behind the “insurance perspective” does not imply giving up the traditional objective of solidarity, both within and between generations; indeed, this aim is strengthened by highlighting the key role of risk diversification. Furthermore, thanks to an analytical framework based on insurance, measures aimed at achieving a given distributional goal are easily designed; while, if the insurance framework is ignored, redistribution in practice ends up with unforeseen and undesirable features.


Results of learning outcomes

1) Knowledge and understanding Economic and psychological determinants of savings; functioning of both public and private pension systems; incentive and redistributive effects of pension systems.  2) Applying knowledge and understanding Application are possible to both simulation and econometric models.   3) Making judgments Improving the ability to understand the economic determinants of savings, to evaluate the costeffectiveness of different insurance programs, to compare the cost of different saving products.  4) Communication skills To acquire greater precision of concepts and language and to learn the economics behind welfare programs 5) Learning skills For a successful in learning, students must acquire a good familiarity with economic, financial and risks concepts 



Course delivery

Lectures and Excercises 



Learning assessment methods

Written examination  

(The possibility of an oral examination is limited to special circumstances, to be discussed with prof. Fornero). 


Support activities

Excercise and tutorship by Stefania Basiglio



 i. Microeconomic foundations of retirement savings 

• Basic deterministic saving models: the LCH and the PIH  (intertemporal optimization models: assumptions and main results)

• Introducing uncertainty • Certainty Equivalence • Permanent Income Hypothesis • Precautionary savings • Life uncertainty and its effects. • The introduction of (actuarially fair) life insurance and the dominance of annuities • Why is the market for annuities everywhere so thin?  • Why are reverse mortgages almost ignored?

• An economic analysis of social security (micro and macroeconomic features of social security) • Financing mode: PAYG vs. Funding • Pension formulae (DB vs. DC) • Actuarial fairness and neutrality • Measures of financial sustainability • Measures of adequacy • Redistribution (both within and between generations) • Incentive structure  • (Induced) retirement   • The aggregate pension wealth (debt) iii. Theoretical and empirical models of retirement • Stylised facts about retirement  • Determinants of retirement choice • The implicit tax on postponing retirement (and related measures)  

• The economics of pension reforms and the importance of Economic-Financial Literacy

 • EFL: concept, measurement, stylized facts, consequences of illiteracy

Suggested readings and bibliography


  1. Browning, M., A. Lusardi, 1996, “Household Saving: Micro Theories and Micro Facts”, Journal of Economic Literature, 34, 1797-1855. 2.
  2. Barr N, P. Diamond, Reforming Pensions,
  3. Diamond P. and P. Orszag, 2004, Saving Social Security. A Balanced Approach, Brookings Institution Press, Washington DC.
  4. Diamond Peter, 2005, “Social Security Rules that Vary with Age”, in: Fornero, E. and P. Sestito (eds), 2005, Pension Systems: Beyond Mandatory Retirement, Cheltenham: Edward Elgar . 
  5. Diamond, P. 2004, ‘Social Security’, The American Economic Review, 94(1), March 2004 7. 
  6. French E, 2005, The Effects of Health, Wealth and Wages on the Labour Supply and Retirement, Review of Economic Studies, vol 72, no 2, Aprile, 395-427.
  7. Fornero E, A Lusardi, C Monticone, Adequacy of Saving for Old Age in Europe,  prepared for the ESF Forward Look project Ageing, Health and Pensions in Europe (the Hague, April 22nd, 2009)
  8. Fornero E., Economic-financial literacy and (sustainable) pension reforms: why the former is a key ingredient for the latter, Bankers, Markets & Investors, 134, January-February 2015.
  9. Fornero E.,  A. LoPrete
  10. Lindbeck A. and M. Persson, 2003, “The Gains from Pension Reform”, Journal of Economic Literature, vol. 41 (1), pp. 74-112.
  11. Scholtz K. Seshadri A., Khitatrakun S., 2006, “Are Americans Saving “Optimally” for Retirement?”  Journal of Political Economy, 114(4), pp. 607-643. 


Additioanl Material will be uploaded into Dropbox folder

Last update: 03/06/2019 11:02
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