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The Roles of Temptation and Social Security in Explaining Individual Behavior

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Author Info
Alessandro Bucciol () (University of Padua)

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Abstract

I simulate a life-cycle model with preferences described by a utility function a' la Gul and Pesendorfer (2001). I show that temptation to consume contributes to explain the saving, retirement consumption, and asset allocation puzzles. I perform two analyses, with and without Social Security protection, separately for the US and Italy. The pension replacement rate is endogenous in the model and varies with income realizations. The results also show that the optimal behavior differs remarkably between the two countries when Social Security is considered. In particular, the more generous Italian system depresses savings and investments of more tempted individuals.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0032.

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Length: 47 pages
Date of creation: Dec 2006
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Handle: RePEc:pad:wpaper:0032

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Caliendo, Frank N. & Gahramanov, Emin, 2008. "Hunting the Unobservables for Optimal Social Security: A General Equilibrium Approach," MPRA Paper 9553, University Library of Munich, Germany. [Downloadable!]
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