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Designing optimal linear rules for flexible retirement

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  • SIMONOVITS, ANDR S

Abstract

This paper applies the method of mechanism design to find optimal linear pension rules (contribution rate and monthly benefit function) for flexible retirement: First the government announces a rule, making the benefit dependent on employment length. Each individual, having private information on his own expected lifespan and utility function, optimizes his employment length, conditional on that rule. The government chooses the optimal Bayesian linear rule, which maximizes the social welfare (e.g. the aggregate individual maxima) under a social constraint (e.g. the aggregate net lifetime contribution equals zero). Under this rule there is a better compromise between incentives and insurance than under so-called actuarially fair benefits.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 2 (2003)
Issue (Month): 03 (November)
Pages: 273-293

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Handle: RePEc:cup:jpenef:v:2:y:2003:i:03:p:273-293_00

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Cited by:
  1. Andras Simonovits, 2013. "Regressive intracohort redistribution in nonfinancial defined contribution pension," IEHAS Discussion Papers 1312, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Alács, Péter, 2004. "Optimális loglineáris nyugdíjösztönzés megoldása numerikus módszerrel
    [Resolving optimal log-linear pension incentives by numerical means]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1029-1047.
  3. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series 1370, CESifo Group Munich.
  4. András Simonovits, 2006. "Optimal Design of Pension Rule with Flexible Retirement: The Two-Type Case," Journal of Economics, Springer, vol. 89(3), pages 197-222, December.
  5. Hans Fehr & Johannes Uhde, 2013. "On the optimal design of pension systems," Empirica, Springer, vol. 40(3), pages 457-482, August.
  6. Heidler, Matthias & Raffelhüschen, Bernd & Leifels, Arne, 2006. "Heterogenous life expectancy, adverse selection, and retirement behaviour," FZG Discussion Papers 13, Research Center for Generational Contracts (FZG), University of Freiburg.
  7. Fehr, Hans & Uhde, Johannes, 2012. "Optimal Pension Design in General Equlibrium," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62024, Verein für Socialpolitik / German Economic Association.

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