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Interdependent durations in joint retirement

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Author Info

  • Bo Honore

    (Institute for Fiscal Studies and Princeton)

  • Aureo de Paula

    (Institute for Fiscal Studies and University College London)

Abstract

This paper introduces a bivariate version of the generalized accelerated failure time model. It allows for simultaneity in the econometric sense that the two realized outcomes depend structurally on each other. The proposed model also has the feasure that it will generate equal durations with positive probability. The motivating example is retirement decisions by married couples. In that example it seems reasonable to allow for the possibility that the each partner's optimal retirement time depends on the retirement time of the spouse. Moreover, the data suggest that the wife and the husband retire at the same time for a non-negligible fraction of couples. Our approach takes as starting point a stylized economic model that leads to a univariate generalized accelerated failure time model. The covariates of that generalized accelerated failure time model act as utility-flow shifters in the economic model. We introduce simultaneity by allowing the utility flow in retirement to depend on the retirement status of the spouse. The econometric model is then completed by assuming that the observed outcome is the Nash bargaining solution in that simple economic model. The advantage of this approach is that it includes independent realizations from the generalized accelerated failure time model as a special case, and deviations from this special case can be given an economic interpretation. We illustrate the model by studying the joint retirement decisions in married couples using the Health and Retirement Study. We provide a discussion of relevant identifying variation and estimate our model using indirect inference. The main empirical finding is that the simultaneity seems economically important. In our preferred specification the indirect utility associated with being retired increases by approximately 5% if one's spouse is already retired and unobservables exhibit positive correlation. The estimated model also predicts that the indirect effect of a change in husbands' pension plan on wives' retirement dates is about 4% of the direct effect on the husbands.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP08/14.

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Date of creation: Mar 2014
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Handle: RePEc:ifs:cemmap:08/14

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  1. Martin Browning & Pierre-André Chiappori & Valérie Lechene, 2004. "Collective and Unitary Models: a Clarification," CAM Working Papers 2004-15, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  3. Alan L. Gustman & Thomas Steinmeier, 2009. "Integrating Retirement Models," NBER Working Papers 15607, National Bureau of Economic Research, Inc.
  4. Magnac, Thierry & Robin, Jean-Marc & Visser, Michael, 1995. "Analysing Incomplete Individual Employment Histories Using Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S153-69, Suppl. De.
  5. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
  6. Ridder, Geert, 1990. "The Non-parametric Identification of Generalized Accelerated Failure-Time Models," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 167-81, April.
  7. Courtney C. Coile, 2004. "Health Shocks and Couples' Labor Supply Decisions," NBER Working Papers 10810, National Bureau of Economic Research, Inc.
  8. de Paula, Áureo, 2009. "Inference in a synchronization game with social interactions," Journal of Econometrics, Elsevier, vol. 148(1), pages 56-71, January.
  9. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  10. Pierre-André Chiappori & Olivier Donni & Ivana Komunjer, 2012. "Learning from a Piece of Pie," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 162-195.
  11. Mark Y. An & Bent Jesper Christensen & Nabanita Datta Gupta, 2004. "Multivariate mixed proportional hazard modelling of the joint retirement of married couples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 687-704.
  12. Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-45, July.
  13. Trivedi, Pravin K. & Zimmer, David M., 2007. "Copula Modeling: An Introduction for Practitioners," Foundations and Trends(R) in Econometrics, now publishers, vol. 1(1), pages 1-111, April.
  14. Chiappori, P.A., 1989. "Collective Labour Supply and Welfare," DELTA Working Papers 89-07, DELTA (Ecole normale supérieure).
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Cited by:
  1. Hospido, Laura & Zamarro, Gema, 2014. "Retirement Patterns of Couples in Europe," IZA Discussion Papers 7926, Institute for the Study of Labor (IZA).

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