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Social security and self control preferences

  • Kumru, Çagri S.
  • Thanopoulos, Athanasios C.

We analyze the welfare effects of an unfunded social security system. We do so using an overlapping generations economy wherein agents have self-control preferences, face mortality risk, individual income risk, and borrowing constraints. Given our specification of preferences, unfunded social security helps reduce the agents' temptation to consume in every period; consequently, the welfare costs it otherwise entails are substantially mitigated. While both social security and self-control when considered separately reduce welfare, their combination renders this effect considerably less severe. Moreover, if the cost of resisting temptation is very high, the introduction of social security might even improve welfare.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(07)00091-7
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 3 (March)
Pages: 757-778

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:3:p:757-778
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Mark Huggett & Gustavo Ventura, 1998. "On the Distributional Effects of Social Security Reform," Working Papers 9801, Centro de Investigacion Economica, ITAM.
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  3. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
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  8. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
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  14. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
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  16. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
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