Administrative Costs and Equilibrium Charges with Individual Accounts
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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Copy CitationPeter Diamond, "Administrative Costs and Equilibrium Charges with Individual Accounts," NBER Working Paper 7050 (1999), https://doi.org/10.3386/w7050.
Published Versions
Administrative Costs and Equilibrium Charges with Individual Accounts, Peter A. Diamond. in Administrative Aspects of Investment-Based Social Security Reform, Shoven. 2000