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On myopia as rationale for social security

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  • Torben Andersen

    ()

  • Joydeep Bhattacharya

    ()

Abstract

It has been argued that "paternalistically motivated forced savings constitutes an important, and to some the most important, rationale for social security retirement systems." This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. If the competing asset is linear storage and myopic agents are allowed to borrow against future pension benefits, there is no welfare-rationale for pay-as-you-go pensions. In that case, sufficently-strong myopia may justify such pensions only if agents cannot borrow against their future pension, and are at a zero-saving corner. With enough myopia, co-existence of positive optimal pensions and positive private saving is possible if the return to saving declines with saving, as in a model with a neoclassical technology.

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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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  1. 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.
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  3. Martin Feldstein, 1982. "The Optimal Level of Social Security Benefits," NBER Working Papers 0970, National Bureau of Economic Research, Inc.
  4. José Apesteguía & Miguel A. Ballester, 2004. "A Theory Of Reference-Dependent Beavior," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0402, Departamento de Economía - Universidad Pública de Navarra.
  5. 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.
  6. 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.
  7. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, vol. 97(2), pages 471-476, May.
  8. 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.
  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. Torben M. Andersen & Joydeep Bhattacharya, 2009. "Unfunded pensions and endogenous labor supply," Economics Working Papers 2009-16, School of Economics and Management, University of Aarhus.
  11. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, April.
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Cited by:
  1. Fabio D'Orlando & Eleonora Sanfilippo, 2008. "Behavioral Foundations for the Keynesian Consumption Function," Working Papers 2008-05, Universita' di Cassino, Dipartimento di Scienze Economiche.
  2. Min Wang, 2014. "Optimal education policies under endogenous borrowing constraints," Economic Theory, Springer, vol. 55(1), pages 135-159, January.
  3. Bhattacharya, Joydeep & Andersen, Torben M, 2012. "Unfunded Pensions and Endogenous Labor Supply," Staff General Research Papers 34912, Iowa State University, Department of Economics.
  4. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIÈRE, Grégory, 2008. "Optimal linear taxation under endogenous longevity," CORE Discussion Papers 2008051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.).

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