IDEAS home Printed from https://ideas.repec.org/h/nbr/nberch/4364.html
   My bibliography  Save this book chapter

Voting over Type and Generosity of a Pension System When Some Individuals Are Myopic

In: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES)

Author

Listed:
  • Helmuth Cremer
  • Philippe De Donder
  • Dario Maldonado
  • Pierre Pestieau

Abstract

This paper studies the determination through majority voting of a pension scheme when society consists of far-sighted and myopic individuals. All individuals have the same basic preferences but myopics tend to adopt a short-term view (instant gratification) when dealing with retirement saving and labor supply. Consequently, they will find themselves with low consumption after retirement and regret their insufficient savings decisions. Henceforth, when voting they tend to commit themselves into forced saving. We consider a pension scheme that is characterized by two parameters: the payroll tax rate (that determines the size or generosity of the system) and the "Bismarckian factor" that determines its redistributiveness. Individuals vote sequentially. We examine how the introduction of myopic agents affects the generosity and the redistributiveness of the pension system. Our main result is that a flat pension system is always chosen when all individuals are of one kind (all far-sighted or all myopic), while a less redistributive system may be chosen if society is composed of both myopic and far-sighted agents. Furthermore, while myopic individuals tend to prefer larger payroll taxes than their far-sighted counterparts, the generosity of the system does not always increase with the proportion of myopics.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Helmuth Cremer & Philippe De Donder & Dario Maldonado & Pierre Pestieau, 2007. "Voting over Type and Generosity of a Pension System When Some Individuals Are Myopic," NBER Chapters, in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 2041-2061, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:4364
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
    2. Luc Arrondel & André Masson & Daniel Verger, 2004. "Mesurer les préférences individuelles pour le présent," Économie et Statistique, Programme National Persée, vol. 374(1), pages 87-128.
    3. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    4. Roland Benabou & Jean Tirole, 2004. "Willpower and Personal Rules," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 848-886, August.
    5. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Economic Journal, Royal Economic Society, vol. 117(520), pages 686-712, April.
    6. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
    7. George-Marios Angeletos, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
    8. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
    9. Eric M. Engen & William G. Gale & John Karl Scholz, 1994. "Do Saving Incentives Work?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 85-180.
    10. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    11. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hans Fehr & Fabian Kindermann, 2010. "Pension Funding and Individual Accounts in Economies with Life-cyclers and Myopes," CESifo Economic Studies, CESifo, vol. 56(3), pages 404-443, September.
    2. Hans Fehr & Fabian Kindermann, 2010. "Pension Funding and Individual Accounts in Economies with Life-cyclers and Myopes," CESifo Economic Studies, CESifo, vol. 56(3), pages 404-443, September.
    3. Andersen, Torben M. & Bhattacharya, Joydeep & Gestsson, Marias H., 2021. "Pareto-improving transition to fully funded pensions under myopia," Journal of Demographic Economics, Cambridge University Press, vol. 87(2), pages 169-212, June.
    4. Kerstin Roeder, 2014. "Optimal taxes and pensions with myopic agents," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 597-618, March.
    5. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," NBER Working Papers 11518, National Bureau of Economic Research, Inc.
    6. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    7. Love, David, 2006. "Buffer stock saving in retirement accounts," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1473-1492, October.
    8. Lewis, Kenneth A. & Seidman, Laurence S., 2001. "The Consumption Tax and Transitional Relief," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 99-120, January.
    9. Tullio Jappelli & Mario Padula & Luigi Pistaferri, 2008. "A Direct Test of The Buffer-Stock Model of Saving," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1186-1210, December.
    10. Ayşe İmrohoroğlu & Selahattin İmrohoroğlu & Douglas H. Joines, 2003. "Time-Inconsistent Preferences and Social Security," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 745-784.
    11. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
    12. Kumru, Cagri S. & Thanopoulos, Athanasios C., 2011. "Social security reform with self-control preferences," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 886-899, August.
    13. Torben M. Andersen & Joydeep Bhattacharya, 2021. "Why mandate young borrowers to contribute to their retirement accounts?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(1), pages 115-149, February.
    14. Kenneth A. Lewis & Laurence S. Seidman, 2002. "Funding Social Security: The Transition in a Life-Cycle Growth Model," Eastern Economic Journal, Eastern Economic Association, vol. 28(2), pages 159-180, Spring.
    15. Börsch-Supan, A. & Härtl, K. & Leite, D.N., 2016. "Social Security and Public Insurance," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 781-863, Elsevier.
    16. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2001. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 321-370, National Bureau of Economic Research, Inc.
    17. Torben M. Andersen & Joydeep Bhattacharya & Qing Liu, 2023. "Can optimal unfunded public pensions co-exist with voluntary private retirement savings?," Indian Economic Review, Springer, vol. 58(1), pages 237-251, July.
    18. Juan C. Conesa & Carlos Garriga, 2008. "Optimal Fiscal Policy In The Design Of Social Security Reforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 291-318, February.
    19. Marco Cagetti, 2001. "Interest Elasticity in a Life-Cycle Model with Precautionary Savings," American Economic Review, American Economic Association, vol. 91(2), pages 418-421, May.
    20. Love, David A., 2017. "Countercyclical retirement accounts," European Economic Review, Elsevier, vol. 98(C), pages 32-48.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:4364. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.