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How Sensitive Are Retirement Decisions to Financial Incentives: A Stated Preference Analysis

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  • Voňková, Hana

    ()
    (Tilburg University)

  • van Soest, Arthur

    ()
    (Tilburg University)

Abstract

We study effects of financial incentives on the retirement age using stated preference data. Dutch survey respondents were given hypothetical retirement scenarios describing age(s) of (partial and full) retirement and replacement rate(s). A structural model is estimated in which utility is the discounted sum of within period utilities that depend on employment status and income. Parameters of the utility function vary with observed and unobserved characteristics. Simulations show that the income and substitution effects of pensions as a function of the retirement age are substantial and larger than according to studies using data on actual retirement decisions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4505.

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Length: 41 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4505

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Keywords: pensions; flexible retirement; gradual retirement; stated choices;

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References

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  1. Jeffrey R. Brown & Courtney C. Coile & Scott J. Weisbenner, 2006. "The Effect of Inheritance Receipt on Retirement," NBER Working Papers 12386, National Bureau of Economic Research, Inc.
  2. Jonathan Gruber & David A. Wise, 2004. "Introduction and Summary," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 1-40 National Bureau of Economic Research, Inc.
    • Jonathan Gruber & Kevin Milligan & David A. Wise, 2010. "Introduction and Summary," NBER Chapters, in: Social Security Programs and Retirement around the World: The Relationship to Youth Employment, pages 1-45 National Bureau of Economic Research, Inc.
  3. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 537-79, May.
  4. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  5. Robin L. Lumsdaine & Olivia S. Mitchell, . "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
  6. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  7. Arthur van Soest & Arie Kapteyn & Julie Zissimopoulos, 2006. "Using Stated Preferences Data to Analyze Preferences for Full and Partial Retirement," Working Papers, RAND Corporation Publications Department 345, RAND Corporation Publications Department.
  8. Mauro Mastrogiacomo & Rob Alessie & Maarten Lindeboom, 2004. "Retirement behaviour of Dutch elderly households," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(6), pages 777-793.
  9. Jan Kakes & Dirk Broeders, 2006. "The sustainability of the Dutch pension system," DNB Occasional Studies, Netherlands Central Bank, Research Department 406, Netherlands Central Bank, Research Department.
  10. Klaas de Vos & Arie Kapteyn, 2004. "Incentives and Exit Routes to Retirement in the Netherlands," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 461-498 National Bureau of Economic Research, Inc.
  11. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
  12. Dalen, H.P. van & Henkens, K. & Hershey, D.A., 2008. "Are Pension Savings sufficient? Perceptions and Expectations of American and Dutch Workers," Discussion Paper, Tilburg University, Center for Economic Research 2008-58, Tilburg University, Center for Economic Research.
  13. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521788304.
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Cited by:
  1. Tibor Hanappi, 2012. "Retirement Behaviour in Austria: Incentive Effects on Old-Age Labor Supply," NRN working papers 2012-13, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  2. van Sonsbeek, Jan-Maarten, 2010. "Micro simulations on the effects of ageing-related policy measures," Economic Modelling, Elsevier, Elsevier, vol. 27(5), pages 968-979, September.

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