Social insurance competition between Bismarck and Beveridge

Social insurance schemes differ according to the relationship between contributions and benefits. Bismarckian systems provide earnings-related benefits, while Beveridgean systems offer flat payments. The conventional wisdom is that with factor mobility poor people have incentives to move towards Beveridgean countries. Consequently, Beveridgean regimes would not be sustainable under economic integration. This paper studies the validity of such a conjecture within a simple model. It is shown that mobility does have a significant impact on social protection. However, the equilibrium patterns that can emerge are more complex and diversified than the initial conjecture suggests. In some cases, the equilibrium may even imply that all the poor move to the Bismarckian country. (C) 2003 Elsevier Inc. All rights reserved.