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Incentive Effects of Social Security Under an Uncertain Disability Option

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Author Info
Börsch-Supan, Axel () (Sonderforschungsbereich 504)
Abstract

Incentive effects of pension systems are usually estimated under the assumption that the institutional environment provides a single optimal 'pathway' for retirement. However, many countries provide competing pathways which may include several early retirement options in addition to normal retire-ment. Moreover, early retirement options often comprise special provisions for disabled and unem-ployed workers that can be strategically manipulated by the employer and the employee while ultimate eligibility for such provisions is uncertain in advance. This paper shows that ignoring the endogeneity and/or uncertainty in the relevant institutional setting can severely bias the estimates of incentive effects. Ignoring the endogeneity leads to overestimated incentive effects that unduly exaggerate the 'pull' view of early retirement. In turn, when the uncertain option set is specified too generously, incentive effects are underestimated. The paper proposes several estimates to bound the true incentive effects of social security on early retirement, and applies them to the German public pension system.

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Publisher Info
Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 01-42.

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Length: 25 pages
Date of creation: 26 Jun 2001
Date of revision:
Handle: RePEc:xrs:sfbmaa:01-42

Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Essig, Lothar, 2004. "Household Saving in Germany:," Sonderforschungsbereich 504 Publications 05-23, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  2. Barbara Berkel & Axel Börsch-Supan, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 03036, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  3. Lothar Essig, 2005. "Household Saving in Germany: Results from SAVE 2001-2003," MEA discussion paper series 05083, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  4. Börsch-Supan, Axel, 2007. "Work Disability, Health, and Incentive Effects," Sonderforschungsbereich 504 Publications 07-23, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  5. Axel Börsch-Supan & Karsten Hank & Hendrik Jürges, 2005. "New Comprehensive and International View on Ageing: The Survey of Health, Ageing and Retirement in Europe," MEA discussion paper series 05075, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  6. Barbara Berkel & Axel Börsch-Supan, 2003. "Renteneintrittsentscheidungen in Deutschland: Langfristige Auswirkungen verschiedener Reformoptionen," MEA discussion paper series 03031, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  7. Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Florian Heiss & Axel Börsch-Supan & Michael Hurd & David Wise, 2007. "Pathways to Disability: Predicting Health Trajectories," MEA discussion paper series 07131, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  9. Barbara Berkel & Axel Börsch-Supan, 2003. "Renteneintrittsentscheidungen in Deutschland: Langfristige Auswirkungen verschiedener Reformoptionen," MEA discussion paper series 03031, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  10. Barbara Berkel & Axel Börsch-Supan, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 03036, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  11. Axel Börsch-Supan, 2007. "Work Disability, Health, and Incentive Effects," MEA discussion paper series 07135, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
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