Konjunkturprognostiker unter Panik: Kommentar

Veroffentlichungen des DIW Berlin

Friedrich Breyer, Stefan Hupfeld

Fairness of Public Pensions and Old-Age Poverty

In several OECD countries, public pay-as-you-go financed pension systems have undergone major
reforms in which future retirement benefit promises have been scaled down. A consequence of
these reforms is that especially in countries with a tight tax-benefit linkage, the retirement ben-
efit claims of low-income workers might not even exceed the minimum income guarantee which
the government provides the aged. Recently, some German politicians have criticized this likely
development because it was unjust that persons who have paid contributions over a long working
life end up with no higher benefits than people who have never worked or paid any contributions.
However, the government defended the current retirement benefit formula with the argument
that every Euro paid as contributions had exactly the same value in generating future retirement
benefits. But this logic has been questioned recently, e.g. by Breyer and Hupfeld (2007), since the
value of a contributed Euro depends on the life expectancy of the individual, which is positively
correlated with annual income. In that earlier paper, we introduced the concept of “distributive
neutrality”, which takes income-group-specific differences in life expectancy into account. The
present paper estimates the relationship between annual earnings and life expectancy of German
retirees empirically and shows how the formula that links benefits to contributions would have to
be modified to achieve distributive neutrality. We compare the new formula to the benefit formu-
las in other OECD countries and analyze a data set provided by the German Pension Insurance Of-
fice on a large cohort of pensioners to find out how the old-age poverty rate would be affected by
the proposed change of the benefit formula. Finally, we discuss other possible effects of a change
in the benefit formula, especially on the labour supply of different earnings groups.

Discussion Paper Nr. 817

September 2008

Clemens Haftendorn, Franziska Holz

Analysis of the World Market for Steam Coal Using a Complementarity
Model

With its resource availability and the prospect of climate friendly technology, coal continues to
play an important role in the global energy sector. We develop a complementarity model of the
international market for steam coal. We want to analyze the level of competition in this market
which is strategic for the importers’ security of energy supply. In a spatial equilibrium framework,
we assume the steam coal exporters to maximize their profits by choosing the optimal quantity
to sell to each importing country. We compare two possible scenarios: perfect competition and
Cournot competition. The results, especially the price levels, indicate that the Cournot model is
not realistic, suggesting that the producing countries do not exert market power. However, the
trade flows and prices observed in reality suggests that there is some form of market power with
price discrimination, possibly following a Bertrand model in a spatial setting.

Discussion Paper Nr. 818

September 2008

Wochenbericht des DIW Berlin Nr. 41/2008

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