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Fair Retirement Under Risky Lifetime

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Author Info

  • Marc Fleurbaey

    ()
    (Princeton University [Pinceton] - Princeton University)

  • Marie-Louise Leroux

    (Université du Québec - Université du Québec - Université du Québec, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique)

  • Pierre Pestieau

    (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPR - Center for Economic Policy Research - CEPR)

  • Grégory Ponthière

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime, and compare the laissez-faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare (ex ante), allowing for a compensation for unequal life expectancies; (2) the maximin on realized lifetime welfare (ex post), allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles, as well as raising the retirement age, unlike the ex ante egalitarian optimum. This result is robust to the introduction of unequal life expectancies and unequal productivities. Hence, the postponement of the retirement age can, quite surprisingly, be defended on egalitarian grounds --although the conclusion is reversed when mortality strikes only after retirement.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00857945.

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Date of creation: Sep 2013
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Handle: RePEc:hal:psewpa:halshs-00857945

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Keywords: Risky lifetime ; Mortality ; Labour supply ; Retirement ; Compensation;

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  1. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, 08.
  2. MICHEL, Philippe & PESTIEAU, Pierre, . "Optimal taxation of capital and labor income with social security and variable retirement age," CORE Discussion Papers RP -1614, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Antoine Bommier & Marie-Louise Leroux & Jean-Marie Lozachmeur, 2011. "Differential mortality and social security," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 273-289, February.
  4. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, Octomber.
  5. Harriet Orcutt Duleep, 1986. "Measuring the Effect of Income on Adult Mortality Using Longitudinal Administrative Record Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 238-251.
  6. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, . "Social security, retirement age and optimal income taxation," CORE Discussion Papers RP -1722, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
  8. Brouwer, Werner B.F. & van Exel, N. Job A., 2005. "Expectations regarding length and health related quality of life: Some empirical findings," Social Science & Medicine, Elsevier, vol. 61(5), pages 1083-1094, September.
  9. CREMER, Helmuth & PESTIEAU, Pierre, . "The double dividend of postponing retirement," CORE Discussion Papers RP -1696, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2003. "The Quantity and Quality of Life and the Evolution of World Inequality," NBER Working Papers 9765, National Bureau of Economic Research, Inc.
  11. Eytan Sheshinski, 1977. "A Model of Social Security and Retirement Decisions," NBER Working Papers 0187, National Bureau of Economic Research, Inc.
  12. Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
  13. Deaton, A., 1998. "Aging and Inequality in Income and Health," Papers 181, Princeton, Woodrow Wilson School - Development Studies.
  14. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August.
  15. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
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  1. #HEJC papers for October 2013
    by academichealtheconomists in The Academic Health Economists' Blog on 2013-09-30 23:30:26

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