Environmental consequences of social security reform: a second best threat to public conservation

The work postulates that investments in environmental stewardship function as an informal intergenerational contract in the current social security system. An immediate pension system reform that orders a transition from a pay-as-you-go system to a 'what you save is what you get' system can erode incentives to maintain environmental conservation efforts. If environmental conservation is highly productive in the long run, pension reform could (1) damage every generation through time, (2) place perhaps a modest but unnecessary drag on economic performance or, at the other extreme, (3) destabilize the ecological system entirely by destroying a highly prized environmental resource critical to future welfare. Several reform amendments are presented, but one may be especially attractive. By formalizing an intergenerational annuity to reward a generation directly for its public conservation investments through the existing pension structure, inefficiencies can be eliminated, up front sacrifices can be reduced and reforms can employ the existing social security apparatus to collect payroll taxes and to disburse pension benefits to implement the amended intergenerational contract. (c) 2004 Elsevier B.V. All rights reserved.