IZA DP No. 249: "Should I Pay for You or for Myself?" The Optimal Level and Composition of Retirement Benefit Systems
Feldstein  posed the questions of what would be the optimal level of retirement benefit, and what would be the optimal mix between the pay-as-you-go system and the funded pension system under the assumption of an exogenous interest rate. We reconsider the problem with the addition of a flexible production function and, consequently, an endogenous interest rate. Moreover, we allow the contributions rate è to be negative as well. In the case of a negative è , the retired subsidize the workers out of their saved capital. This case turns out to be the optimal one in situations of low population growth.