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On myopia as rationale for social security

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  • Torben Andersen

    ()

  • Joydeep Bhattacharya

    ()

Abstract

This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.

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File URL: http://hdl.handle.net/10.1007/s00199-010-0528-z
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 47 (2011)
Issue (Month): 1 (May)
Pages: 135-158

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Handle: RePEc:spr:joecth:v:47:y:2011:i:1:p:135-158

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Related research

Keywords: Myopia; Pensions; Social security; Dynamic efficiency; H 55; E 6;

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References

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  1. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer, vol. 40(3), pages 427-455, September.
  2. Cremer, Helmuth & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2008. "Forced Saving, Redistribution and Nonlinear Social Security Schemes," CEPR Discussion Papers 6775, C.E.P.R. Discussion Papers.
  3. Andersen, Torben M. & Bhattacharya, Joydeep, 2013. "Unfunded Pensions And Endogenous Labor Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 17(05), pages 971-997, July.
  4. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521806428.
  5. Fernando Perera-Tallo & Hideo Konishi, 1997. "Existence of steady - state equium in an overlapping-generations model with production (*)," Economic Theory, Springer, vol. 9(3), pages 529-537.
  6. Laurence J. Kotlikoff, 1987. "Justifying Public Provision of Social Security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 674-696.
  7. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
  8. Martin Feldstein, 1982. "The Optimal Level of Social Security Benefits," NBER Working Papers 0970, National Bureau of Economic Research, Inc.
  9. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
  10. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, vol. 97(2), pages 471-476, May.
  11. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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Cited by:
  1. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  2. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1035-1046, December.
  3. Marie-Louise Leroux & Pierre Pestieau & Gregory Ponthiere, 2011. "Optimal linear taxation under endogenous longevity," Journal of Population Economics, Springer, vol. 24(1), pages 213-237, January.
  4. Bhattacharya, Joydeep & Andersen, Torben M, 2012. "Unfunded Pensions and Endogenous Labor Supply," Staff General Research Papers 34912, Iowa State University, Department of Economics.
  5. Min Wang, 2014. "Optimal education policies under endogenous borrowing constraints," Economic Theory, Springer, vol. 55(1), pages 135-159, January.

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