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Fair retirement under risky lifetime

Author

Listed:
  • FLEURBAEY, Marc

    (Princeton University)

  • LEROUX, Marie-Louise

    (Départment des Sc. Economiques, ESG-Université du Québec à Montréal (UQAM), CIRPEE, Canada; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • PESTIEAU, Pierre

    () (University of Liège; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Paris School of Economics and CEPR)

  • PONTHIERE, Grégory

    () (Paris School of Economics and Ecole Normale Supérieure, Paris)

Abstract

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime, and compare the laissez-faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare (ex ante), allowing for a compensation for unequal life expectancies; (2) the maximin on realized lifetime welfare (ex post), allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles, as well as raising the retirement age, unlike the ex ante egalitarian optimum. This result is robust to the introduction of unequal life expectancies and unequal productivities. Hence, the postponement of the retirement age can, quite surprisingly, be defended on egalitarian grounds - although the conclusion is reversed when mortality strikes only after retirement.

Suggested Citation

  • FLEURBAEY, Marc & LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, 2013. "Fair retirement under risky lifetime," CORE Discussion Papers 2013049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2013049
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    References listed on IDEAS

    as
    1. Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
    2. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591.
    3. Cremer, Helmuth & Pestieau, Pierre, 2003. "The Double Dividend of Postponing Retirement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 419-434, August.
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    7. Philippe Michel & Pierre Pestieau, 2002. "Optimal Taxation of Capital and Labor Income with Social Security and Variable Retirement Age," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(2), pages 163-163, May.
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    10. Fleurbaey, Marc & Leroux, Marie-Louise & Ponthiere, Gregory, 2014. "Compensating the dead," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 28-41.
    11. Deaton, Angus S & Paxson, Christina H, 1998. "Aging and Inequality in Income and Health," American Economic Review, American Economic Association, vol. 88(2), pages 248-253, May.
    12. Harriet Orcutt Duleep, 1986. "Measuring the Effect of Income on Adult Mortality Using Longitudinal Administrative Record Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 238-251.
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    15. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, June.
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    Citations

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    Cited by:

    1. Grégory Ponthière, 2018. "A Theory of Reverse Retirement," PSE Working Papers halshs-01789651, HAL.
    2. Johanna Etner & Natacha Raffin & Thomas Seegmuller, 2018. "Male Reproductive Health, Fairness and Optimal Policies," Working Papers halshs-01798983, HAL.
    3. Leroux, Marie-Louise & Pestieau, Pierre & Ponthière, Grégory, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497, Décembre.
    4. Grégory Ponthière, 2017. "Pollution, décès prématuré et compensation," Revue économique, Presses de Sciences-Po, vol. 68(1), pages 97-118.
    5. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española, IEF, vol. 200(1), pages 41-74, March.
    6. Marc Fleurbaey & Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière & Stephane Zuberk, 2017. "Premature deaths, accidental bequests and fairness," PSE Working Papers halshs-01649527, HAL.
    7. Pierre Pestieau & Grégory Ponthiere, 2012. "On the Policy Implications of Changing Longevity," CESifo Working Paper Series 3926, CESifo Group Munich.
    8. Pierre Pestieau & Grégory Ponthière, 2012. "The public economics of increasing longevity," PSE Working Papers halshs-00676492, HAL.
    9. repec:clr:wugarc:y:2016v:42i:03p:465 is not listed on IDEAS
    10. No authors listed, 2016. "Überlegungen zur fairen und nachhaltigen Ausgestaltung eines Pensionskontensystems," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 159, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    11. Pierre Pestieau & Grégory Ponthière, 2012. "The public economics of increasing longevity," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00813211, HAL.
    12. repec:clr:wugarc:y:2016v:42i:3p:465 is not listed on IDEAS

    More about this item

    Keywords

    risky lifetime; mortality; labour supply; retirement; compensation;

    JEL classification:

    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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