CREMER, Helmuth (Toulouse School of Economics) DE DONDER, Philippe (Toulouse School of Economics) MALDONADO, Dario (Universidad del Rosario) PESTIEAU, Pierre (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
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This paper studies the design of a nonlinear social security scheme in a society where individuals differ in two respects: productivity and degree of myopia. Myopic individuals may not save "enough" for their retirement because their "myopic self" emerges when labor supply and savings decisions are made. The social welfare function is paternalistic: the rate of time preference of the far-sighted (which corresponds to the "true" preferences of the myopics) is used for both types. We show that the paternalistic solution does not necessarily imply forced savings for the myopics. This is because paternalistic considerations are mitigated or even outweighed by incentive effects. Our numerical results suggest that as the number of myopic individuals increases, there is less redistribution and more forced saving. Furthermore, as the number of myopic increases, the desirability of social security (measured by the difference between social welfare with and without social security) increases.
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number
2008020.
Find related papers by JEL classification: H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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