Optimal population growth and social security reform with heterogeneous agents

In this paper we propose a pension policy that would isolate the social security system from any financial crisis resulting from changes in population structure. This policy consists of linking social security benefits to the fertility behaviour of the individual. We present a theoretical analysis to show that this policy restores the optimality of the capital-labour ratio and the population growth rate in an overlapping-generations model with endogenous fertility. We extend this analysis to the case of heterogeneous agents with respect to their preferences towards children.