An economic and financial analysis of the Latin American model of pension intermediaries

In both developed and developing countries, there is currently a great level of public and political awareness about the topic of mandatory pension systems. In the early 1990s, several Latin American countries (Chile, Peru, and Argentina), facing problems with their pay-as-you-go pension systems, introduced defined-contribution pension models. They are by definition fully-funded pension systems with individual accounts managed by private pension intermediaries on behalf of workers. Pension intermediaries are heavily regulated. Unlike defined-contribution plans in the USA and the UK, which offer a choice of asset mix to their participants, pension intermediaries in Latin America can offer only one fund. Intermediaries are limited in the proportion of assets under management that can be invested by type of asset and by issuer. Moreover, the governments that have adopted this type of pension plan provide two types of guarantees. One is a government subsidized minimum pension benefit paid to participants after retirement, and the other is a guarantee on the rate of return credited to individual accounts before retirement. Both the pension intermediaries and the government share the cost of guaranteeing the rate of return of workers' funds.; This dissertation investigates several separate issues that arise in the context of the Latin American pension model employing both an economic and a financial model. I believe that these issues may have significant policy implications. The economic model studies how the regulation affects the asset mix selection of pension intermediaries. The financial model calculates the value of the guarantee provided by a representative pension intermediary.; The economic model is based on a non-cooperative static two-intermediary game. I present two scenarios: with and without the regulation that guarantees a minimum rate of return on workers' funds.; Separately, using contingent-claims analysis, the financial model studies the cost for a representative pension intermediary of providing part of the guarantee on the rate of return of the fund that it manages.; Therefore, the guarantee on the rate of return of workers' funds with its associated regulation as implemented today in several Latin American countries tends to reduce the spectrum of asset mix available to workers. (Abstract shortened by UMI.)...