OLG models with realistic pension system

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The VFI toolkit is great in dealing with life-cycle models and OLG models. I came across the paper " Sustainable social security: Four options" by Sagiri Kitao, available here, which evaluates the aggregate and welfare consequences of different social security reforms.

A nice feature of the paper is that it models carefully the pension system, in contrast to earlier papers in the literature. The computational cost of doing this is that we need an additional individual state variable, denoted as e in the paper, which is the “index of cumulated labor earnings that determine the social security benefit”. From what I see, this requires interpolation because the next-period value e’ is not likely to be on the grid for e. Or am I wrong?

So my question is whether the toolkit can handle this type of finite-horizon models. Thanks!

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The toolkit has some (not-yet-public, won’t be till mid next year) new asset types for human capital, which will also work for this kind of ‘cumulative lifetime earnings’. Note that both human capital and cumulative earnings are roughly doing “next period state value is this period plus something relating to how much you work/study”.

Currently there is experienceasset which is aprime(d,a), and experienceassetu which is aprime(d,a,u), but I also want to do a experienceassetz which is aprime(d,a,z), and the setup in this Kitao (2014) paper would count as an experienceassetz.

So the short answer is not yet, but the toolkit will be able to do this kind of model from around mid-2024.

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