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An experimental test on dynamic consumption and lump-sum pensions

Author

Listed:
  • Enrique Fatás
  • Juan Lacomba
  • Francisco Lagos
  • Ana Moro-Egido

Abstract

This article examines the potential risks on consumption behavior of lump-sum payments. As a pension, lump-sum payments could be consumed too fast and generate an increase of poverty rates. We experimentally investigate consumption behavior in an inter-temporal decision-making setting. Subjects make consumption and saving decisions in an environment with two central features: first, there exists a decreasing probability of survival; and second, in addition to the regular income they get while active, they receive a unique lump-sum payment when retired. The results of this experiment show that rather than consuming too much during their income periods, subjects show a persistent precautionary saving behavior and over-save in the vast majority of periods. This result seems to be mainly driven by the risk averse individuals. Copyright The Author(s) 2013

Suggested Citation

  • Enrique Fatás & Juan Lacomba & Francisco Lagos & Ana Moro-Egido, 2013. "An experimental test on dynamic consumption and lump-sum pensions," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(4), pages 393-413, November.
    • Handle: RePEc:spr:series:v:4:y:2013:i:4:p:393-413
    DOI: 10.1007/s13209-013-0098-y
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    References listed on IDEAS

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    Cited by:

    1. van der Heijden, E.C.M. & Koç, E. & Ligthart, J.E. & Meijdam, A.C., 2015. "Pensions and Consumption Decisions: : Evidence From the Lab," Discussion Paper 2015-014, Tilburg University, Center for Economic Research.

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    More about this item

    Keywords

    Experimental test; Consumption; Savings; Lump-sum payment; C91; H55; J26;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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