Generational political dynamics of retirement pensions systems: An agent based model

TL;DR

This paper introduces an agent-based model to analyze the complex political and economic dynamics influencing retirement pension systems, emphasizing inter-generational relations and heterogeneous agent interactions.

Contribution

It presents a novel agent-based modeling approach to study pension system dynamics, relaxing traditional assumptions and incorporating political and economic perspectives.

Findings

Identifies conditions for the sustainability of public pension systems.

Highlights the impact of individual preferences and voting on pension policy outcomes.

Demonstrates the importance of inter-generational cooperation and conflict in pension dynamics.

Abstract

The increasing difficulties in financing the welfare state and in particular public retirement pensions have been one of the outcomes both of the decrease of fertility and birth rates combined with the increase of life expectancy. The dynamics of retirement pensions are usually studied in Economics using overlapping generation models. These models are based on simplifying assumptions like the use of a representative agent to ease the problem of tractability. Alternatively, we propose to use agent-based modelling (ABM), relaxing the need for those assumptions and enabling the use of interacting and heterogeneous agents assigning special importance to the study of inter-generational relations. We treat pension dynamics both in economics and political perspectives. The model we build, following the ODD protocol, will try to understand the dynamics of choice of public versus private retirement pensions resulting from the conflicting preferences of different agents but also from the cooperation between them. The aggregation of these individual preferences is done by voting. We combine a microsimulation approach following the evolution of synthetic populations along time, with the ABM approach studying the interactions between the different agent types. Our objective is to depict the conditions for the survival of the public pensions system emerging from the relation between egoistic and altruistic individual and collective behaviours.