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On myopia as rationale for social security

  • Torben Andersen

    ()

  • Joydeep Bhattacharya

    ()

It has been argued that "paternalistically motivated forced savings constitutes an important, and to some the most important, rationale for social security retirement systems." This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. If the competing asset is linear storage and myopic agents are allowed to borrow against future pension benefits, there is no welfare-rationale for pay-as-you-go pensions. In that case, sufficently-strong myopia may justify such pensions only if agents cannot borrow against their future pension, and are at a zero-saving corner. With enough myopia, co-existence of positive optimal pensions and positive private saving is possible if the return to saving declines with saving, as in a model with a neoclassical technology.

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File URL: http://hdl.handle.net/10.1007/s00199-010-0528-z
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 47 (2011)
Issue (Month): 1 (May)
Pages: 135-158

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Handle: RePEc:spr:joecth:v:47:y:2011:i:1:p:135-158
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  1. Torben M. Andersen & Joydeep Bhattacharya, 2009. "Unfunded pensions and endogenous labor supply," Economics Working Papers 2009-16, School of Economics and Management, University of Aarhus.
  2. Fernando Perera-Tallo & Hideo Konishi, 1997. "Existence of steady - state equium in an overlapping-generations model with production (*)," Economic Theory, Springer, vol. 9(3), pages 529-537.
  3. Jose Apesteguia & Miguel A. Ballester, 2007. "A theory of reference-dependent behavior," Economics Working Papers 1056, Department of Economics and Business, Universitat Pompeu Fabra.
  4. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2008. "Forced saving, redistribution and nonlinear social security schemes," CORE Discussion Papers 2008020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  6. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 303-20, May.
  7. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
  8. Jappelli, Tullio & Pagano, Marco, 1988. "Consumption and Capital Market Imperfection: An International Comparison," CEPR Discussion Papers 244, C.E.P.R. Discussion Papers.
  9. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  10. Laurence J. Kotlikoff, 1987. "Justifying Public Provision of Social Security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 674-696.
  11. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, vol. 97(2), pages 471-476, May.
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