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A Dynamic Model with Endogenous Retirement: Existence of Multiple Steady States

  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Nianqing Liu

    (Department of Economics, University of Iowa)

  • Heng-fu Zou

    (CEMA, Central University of Finance and Economics
    IAS, Wuhan University
    Peking University)

This paper extends Matsuyama's (2006) 0-1 endogenous-retirement choice in the second period to a framework with a continuous-endogenous-retirement choice to study consumption-saving decision and capital accumulation in an overlapping-generations model. The existence of the steady state is shown, and the conditions for the existence of multiple steady states are provided for both Matsuyama's (2006) 0-1 endogenous-retirement choice and the continuous-endogenous-retirement choice models, respectively. Different from Matsuyama's (2006) 0 or 1 labor choice (a full-time employee or a full-time retiree) in the steady state, a partial retirement may be a stable equilibrium under the continuous endogenous retirement choice in the second period. Therefore, partial retirement may be the optimal choice, and the retirement choice depends on the initial capital stock: if the initial capital stock is larger than a critical capital stock, then the individual will choose a relatively higher retirement level; if the initial capital stock is lower than a critical capital stock, then the individual will choose a relatively lower retirement level.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 561.

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Length: 22 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:cuf:wpaper:561
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  1. Dora L. Costa, 1998. "The Evolution of Retirement: An American Economic History, 1880-1990," NBER Books, National Bureau of Economic Research, Inc, number cost98-1, December.
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
  4. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  5. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
  6. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
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