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On Myopia As Rationale for Social Security

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  • Anderson, Torben M.
  • Bhattacharya, Joydeep

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.

Suggested Citation

  • Anderson, Torben M. & Bhattacharya, Joydeep, 2008. "On Myopia As Rationale for Social Security," Staff General Research Papers Archive 12985, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:12985
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    References listed on IDEAS

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    More about this item

    Keywords

    myopia; pensions; social security; dynamic efficiency;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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