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A Dynamic Model with Endogenous Retirement: Existence of Multiple Steady States

Author

Listed:
  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Nianqing Liu

    (Department of Economics, University of Iowa)

  • Heng-fu Zou

    (CEMA, Central University of Finance and Economics
    IAS, Wuhan University
    Peking University)

Abstract

This paper extends Matsuyama's (2006) 0-1 endogenous-retirement choice in the second period to a framework with a continuous-endogenous-retirement choice to study consumption-saving decision and capital accumulation in an overlapping-generations model. The existence of the steady state is shown, and the conditions for the existence of multiple steady states are provided for both Matsuyama's (2006) 0-1 endogenous-retirement choice and the continuous-endogenous-retirement choice models, respectively. Different from Matsuyama's (2006) 0 or 1 labor choice (a full-time employee or a full-time retiree) in the steady state, a partial retirement may be a stable equilibrium under the continuous endogenous retirement choice in the second period. Therefore, partial retirement may be the optimal choice, and the retirement choice depends on the initial capital stock: if the initial capital stock is larger than a critical capital stock, then the individual will choose a relatively higher retirement level; if the initial capital stock is lower than a critical capital stock, then the individual will choose a relatively lower retirement level.

Suggested Citation

  • Liutang Gong & Nianqing Liu & Heng-fu Zou, 2006. "A Dynamic Model with Endogenous Retirement: Existence of Multiple Steady States," CEMA Working Papers 561, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:561
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Overlapping-generations model; Endogenous retirement; Multiple steady states;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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