to be hard to establish the effects of altruism and fairness separately. Finally, the concluding remarks
are presented in Section 5.
2 Altruism and fairness
One obvious explanation for the maintenance of public pension plans is the existence of altruism among
generations. In particular, younger generations might want to support such plans because the well-being
of the older generations is an argument in their utility functions (see e.g. Veall (1986)). As a result
young individuals are willing to invest, through the tax system, part of their income in a PAYG-finan-
ced plan, even if an alternative investment choice would generate a higher rate of return. Typically,
one would expect that spending on pensions is not completely determined by altruism so that people
will also save a part of their income in a more or less individual pension plan based on a Capital-
Reserve system. As noted in the literature, however, in addition to altruism, senses of social justice
or fairness can also play a role in explaining non-egoistic behaviour. Kahneman, Knetsch and Thaler
(1986), for instance, derive several community standards of fairness from a household survey. They
argue that fairness can be a constraint on profit seeking.
In psychological and economic experimental studies it has been established that norms of fairness can
have a significant effect on market outcomes. De Vries, for instance, argues that most people try to
maximize their own well-being within the boundaries of what they consider to be tolerable behaviour
from a social justice point of view (De Vries (1991, p. 58)). Several papers (e.g. Fehr, Kirchsteiger
and Riedl (1993) and Burrow and Loomes (1994)) conclude that people place a value on fairness.
However, their results show that the motive of altruism cannot easily be separated empirically from
the motive of fairness. As noted above altruism prevails if the income, or more general well-being,
of other individuals, is an argument of an individual’s utility function. On the other hand, fairness
cannot always be associated with utility maximising behaviour. People may be willing to transfer part
of their income even if that detracts from maximum utility. In our empirical study based on a survey,
notions of fair rates of return on pension taxes for different generations can be derived. We verify
empirically whether such notions have any effect on the individuals’ evaluations of the collective
pension plan. Moreover, if we take for granted that other generations’ income determine the degree
of altruism of any individual, it is possible to test whether altruism and fairness have an independent
role in shaping the evaluation of the public pension system.