NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Administrative Costs and Equilibrium Charges with Individual Accounts

Peter Diamond

NBER Working Paper No. 7050
Issued in March 1999
NBER Program(s):   PE

There are many individual account proposals. For government-organized accounts, the government arranges for both record-keeping and investment management. For privately-organized accounts, individuals directly select private firms to do these tasks. The government spreads the costs of government-organized accounts among accounts, outside sources of revenue, employers and workers. With privately-organized accounts, equilibrium prices reflect selling costs as well as administrative costs. Thus, government-organized accounts are organized on a group basis while privately-organized accounts are organized on an individual basis. In financial and insurance markets generally, the group and individual markets function very differently and yield different pricing structures. The paper describes a low cost/low services government-organized plan and estimates that it might cost $40-50 per worker per year. The nature of equilibrium with privately-organized accounts is discussed, with the conclusion that the costs would be very high compared to the cost of government organization.

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Document Object Identifier (DOI): 10.3386/w7050

Published: Administrative Costs and Equilibrium Charges with Individual Accounts, Peter A. Diamond. in Administrative Aspects of Investment-Based Social Security Reform, Shoven. 2000

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