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Switching Costs and Competition in Retirement Investment

Author

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  • Fernando Luco

Abstract

How do different switching costs affect choices and competition in a private pension system? I answer this question in a setting in which variation in employment status allows me to identify two switching costs that jointly affect enrollees' decisions: the cost of evaluating financial information and the cost of the bureaucratic process that enrollees must navigate when switching. I use this variation to estimate the different switching costs and study their impact on competition among pension funds. I find that though eliminating all switching costs decreases equilibrium fees the most, eliminating either switching cost decreases fees significantly.

Suggested Citation

  • Fernando Luco, 2019. "Switching Costs and Competition in Retirement Investment," American Economic Journal: Microeconomics, American Economic Association, vol. 11(2), pages 26-54, May.
  • Handle: RePEc:aea:aejmic:v:11:y:2019:i:2:p:26-54
    Note: DOI: 10.1257/mic.20160332
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    Citations

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    Cited by:

    1. Black, J. Stewart & van Esch, Patrick, 2021. "AI-enabled recruiting in the war for talent," Business Horizons, Elsevier, vol. 64(4), pages 513-524.
    2. Irene Maria Buso & John Hey, 2021. "Why do consumers not switch? An experimental investigation of a search and switch model," Theory and Decision, Springer, vol. 91(4), pages 445-476, November.
    3. Dahl, Gordon B. & Forbes, Silke J., 2023. "Doctor switching costs," Journal of Public Economics, Elsevier, vol. 221(C).
    4. Jõeveer, Karin & Kepp, Kaido, 2023. "What drives drivers? Switching, learning, and the impact of claims in car insurance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 103(C).
    5. Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    6. Tamara Bischof & Michael Gerfin & Tobias Mueller, 2021. "Attention Please! Health Plan Choice and (In-)Attention," Diskussionsschriften dp2111, Universitaet Bern, Departement Volkswirtschaft.
    7. Sam Flanders & Melati Nungsari & Marcela Parada‐Contzen, 2020. "Pricing schemes and market efficiency in private retirement systems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1041-1068, August.
    8. Karle, Heiko & Schumacher, Heiner & Vølund, Rune, 2023. "Consumer loss aversion and scale-dependent psychological switching costs," Games and Economic Behavior, Elsevier, vol. 138(C), pages 214-237.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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    1. Switching Costs and Competition in Retirement Investment (AEJ:MI 2019) in ReplicationWiki

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