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Who cares about the day after tomorrow? Pension issues when households are myopic or time inconsistent

Author

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  • Axel Börsch‐Supan
  • Klaus Härtl
  • Duarte Nuno Leite

Abstract

Pension economics has traditionally guided pension policy with the help of formal models based on individuals who think in a life‐cycle context with perfect foresight, full information, and in a time‐consistent manner. Associated macro models were mostly based on a single country. This paper sheds light on several aspects of pension economics when these assumptions do not hold using—to our knowledge—the first multi‐country model of procrastinating households. Our focus is on the interaction between the share of procrastinators in a country, the speed and extent of population aging, and the size of an existing PAYG‐DB pension system. Starting from the insight that procrastination reduces the volume of savings, we focus on three questions that are particularly relevant for the quickly aging Asian economies: What are the consequences for the balance between pay‐as‐you‐go and fully funded pension systems? Where will retirement savings be invested in a globally linked world with very different pension systems and demographics? How large are global spillover effects of pension reforms in one region for the other regions in the world?

Suggested Citation

  • Axel Börsch‐Supan & Klaus Härtl & Duarte Nuno Leite, 2018. "Who cares about the day after tomorrow? Pension issues when households are myopic or time inconsistent," Review of Development Economics, Wiley Blackwell, vol. 22(3), pages 953-989, August.
    • Handle: RePEc:bla:rdevec:v:22:y:2018:i:3:p:953-989
    DOI: 10.1111/rode.12372
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    Cited by:

    1. Börsch-Supan, Axel & Härtl, Klaus & Leite, Duarte N., 2018. "Earnings test, non-actuarial adjustments and flexible retirement," Economics Letters, Elsevier, vol. 173(C), pages 78-83.
    2. Geri, Milva, 2022. "Pension arrangements and economic thinking: unreal assumptions and false predictions in the case of Argentina," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.

    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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