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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.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12985.

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Date of creation: 01 Sep 2008
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Publication status: Published in Economic Theory 2011, vol. 47 no. 1, pp. 135-158
Handle: RePEc:isu:genres:12985

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Keywords: myopia; pensions; social security; dynamic efficiency;

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  1. CREMER, Helmuth & De DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, . "Forced saving, redistribution, and nonlinear social security schemes," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2147, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 79(5), pages 1088-1105, December.
  3. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 471-476, May.
  4. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 467.
  5. Bhattacharya, Joydeep & Andersen, Torben M, 2012. "Unfunded Pensions and Endogenous Labor Supply," Staff General Research Papers, Iowa State University, Department of Economics 34912, Iowa State University, Department of Economics.
  6. Jose Apesteguia & Miguel A. Ballester, 2007. "A Theory of Reference-Dependent Behavior," Working Papers 323, Barcelona Graduate School of Economics.
  7. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(2), pages 303-20, May.
  8. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521806428.
  9. Laurence J. Kotlikoff, 1987. "Justifying Public Provision of Social Security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 674-696.
  10. Fernando Perera-Tallo & Hideo Konishi, 1997. "Existence of steady - state equium in an overlapping-generations model with production (*)," Economic Theory, Springer, Springer, vol. 9(3), pages 529-537.
  11. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bhattacharya, Joydeep & Andersen, Torben M, 2012. "Unfunded Pensions and Endogenous Labor Supply," Staff General Research Papers, Iowa State University, Department of Economics 34912, Iowa State University, Department of Economics.
  2. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, . "Optimal linear taxation under endogenous longevity," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2268, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  4. Min Wang, 2014. "Optimal education policies under endogenous borrowing constraints," Economic Theory, Springer, Springer, vol. 55(1), pages 135-159, January.
  5. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(6), pages 1035-1046, December.

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