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Social Security and the Retirement Decision

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  • Vincent P. Crawford
  • David M. Lilien

Abstract

The effect of Social Security and private pensions on individual retirement decisions is modeled, relaxing in turn three commonly maintained assumptions—perfect capital markets, actuarial fairness, and certain lifetimes—which together imply that there is no effect. In each case, raising the contribution level can cause systematic changes (of either sign in general) in individual retirement decisions. For Social Security, the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement. But those effects that arise solely from the insurance aspect of Social Security and private pensions are ambiguous in sign, owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer.

Suggested Citation

  • Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 505-529.
  • Handle: RePEc:oup:qjecon:v:96:y:1981:i:3:p:505-529.
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    File URL: http://hdl.handle.net/10.2307/1882684
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    5. Menahem E. Yaari, 1965. "Convexity in the Theory of Choice under Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 79(2), pages 278-290.
    6. Martin Weitzman, 2008. "Utility Analysis And Group Behavior An Empirical Study," World Scientific Book Chapters,in: Efficiency Of Racetrack Betting Markets, chapter 9, pages 47-55 World Scientific Publishing Co. Pte. Ltd..
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