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Myopia, redistribution and pensions

  • CREMER, Helmuth

    (Toulouse School of Economics (GREMAQ, IDEI and Institut universitaire de France))

  • PESTIEAU, Pierre

    ()

    (CREPP, HEC-Management School, University of Liège, Belgium; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; PSE and CEPR)

This paper reviews a number of recent contributions that study pension design with myopic individuals. Its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity. This double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations, which is at the heart of most of the results that are presented. The main part of the paper is devoted to the issue of pension design when myopic individual do not save “enough” for their retirement because their “myopic self” (with a high discount rate) emerges when labor supply and savings decisions are made. Some extensions and variations are considered in the second part. In particular we deal with situations where labor disutility or preferences for consumption are subject to “habit formation” and where sin goods have a detrimental effect on second period health. Myopic individuals tend to underestimate the effects of both habit formation and sinful consumption, which complicates public policy.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010038.

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Date of creation: 01 Jul 2010
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Handle: RePEc:cor:louvco:2010038
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  1. Cremer, Helmuth & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2006. "Designing a Linear Pension Scheme with Forced Savings and Wage Heterogeneity," CEPR Discussion Papers 5914, C.E.P.R. Discussion Papers.
  2. 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.
  3. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  4. Hans Fehr & Christian Habermann & Fabian Kindermann, 2008. "Social Security with Rational and Hyperbolic Consumers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 884-903, October.
  5. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October.
  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. 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: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 2041-2061 National Bureau of Economic Research, Inc.
  8. 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.
  9. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Imperfect Knowledge, Retirement and Saving," NBER Working Papers 8406, National Bureau of Economic Research, Inc.
  10. Peter A. Diamond, 2003. "Taxation, Incomplete Markets, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042134, June.
  11. Francois Salanie & Nicolas Treich, 2006. "Over-savings and hyperbolic discounting," Working Papers 15949, Institut National de la Recherche Agronomique, France.
  12. Docquier, Frederic, 2002. "On the optimality of public pensions in an economy with life-cyclers and myopes," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 121-140, January.
  13. T. Findley & Frank Caliendo, 2009. "Short horizons, time inconsistency, and optimal social security," International Tax and Public Finance, Springer, vol. 16(4), pages 487-513, August.
  14. Pierre Pestieau & Uri Possen, 2008. "Prodigality And Myopia-Two Rationales For Social Security," Manchester School, University of Manchester, vol. 76(6), pages 629-652, December.
  15. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2000. "Time inconsistent preferences and Social Security," Discussion Paper / Institute for Empirical Macroeconomics 136, Federal Reserve Bank of Minneapolis.
  16. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  17. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  18. Sanna Tenhunen & Matti Tuomala, 2010. "On Optimal Lifetime Redistribution Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 171-198, 02.
  19. T. Findley & Frank Caliendo, 2008. "The behavioral justification for public pensions: a survey," Journal of Economics and Finance, Springer, vol. 32(4), pages 409-425, October.
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