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Fair retirement under risky lifetime

  • 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)

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.

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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 2013049.

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Date of creation: 23 Sep 2013
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Handle: RePEc:cor:louvco:2013049
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  1. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2003. "The Quantity and Quality of Life and the Evolution of World Inequality," NBER Working Papers 9765, National Bureau of Economic Research, Inc.
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  9. Cremer, Helmuth & Pestieau, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003.
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  11. Fleurbaey, Marc & Leroux, Marie-Louise & Ponthiere, Gregory, 2014. "Compensating the dead," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 28-41.
  12. Deaton, Angus S & Paxson, Christina H, 1998. "Aging and Inequality in Income and Health," American Economic Review, American Economic Association, vol. 88(2), pages 248-53, May.
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  14. MICHEL, Philippe & PESTIEAU, Pierre, . "Optimal taxation of capital and labor income with social security and variable retirement age," CORE Discussion Papers RP -1614, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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