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On Myopia as Rationale for Social Security

  • Torben Andersen
  • Joydeep Bhattacharya

This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2401.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2401
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  1. Torben M. Andersen & Joydeep Bhattacharya, 2009. "Unfunded pensions and endogenous labor supply," Economics Working Papers 2009-16, Department of Economics and Business Economics, Aarhus University.
  2. CREMER, Helmuth & De DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, . "Forced saving, redistribution, and nonlinear social security schemes," CORE Discussion Papers RP 2147, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. 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.
  4. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
  5. Jose Apesteguia & Miguel A. Ballester, 2007. "A theory of reference-dependent behavior," Economics Working Papers 1056, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
  7. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, vol. 97(2), pages 471-476, May.
  8. 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.
  9. 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.
  10. Fernando Perera-Tallo & Hideo Konishi, 1997. "Existence of steady - state equium in an overlapping-generations model with production (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(3), pages 529-537.
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