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Optimum Delayed Retirement Credit

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  • Eytan Sheshinski

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Abstract

A central question for pension design is how benefits should vary with the age of retirement beyond early eligibility age. It is often argued that in order to be neutral with respect to individual retirement decisions benefits should be actuarially fair, that is, the present value of additional contributions and benefits (’Delayed Retirement Credit’ - DRC) due to postponed retirement should be equal. We show that in a self-selection, asymmetric information model, because individual decisions are suboptimal, the socially optimal benefit structure should be less than actuarially fair.

Suggested Citation

  • Eytan Sheshinski, 2002. "Optimum Delayed Retirement Credit," Discussion Paper Series dp329, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  • Handle: RePEc:huj:dispap:dp329
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    References listed on IDEAS

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    1. Masahiko Aoki, 2013. "Marshallian External Economies And Optimal Tax-Subsidy Structure," Chapters,in: Comparative Institutional Analysis, chapter 2, pages 5-17 Edward Elgar Publishing.
    2. Green, Jerry & Sheshinski, Eytan, 1976. "Direct versus Indirect Remedies for Externalities," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 797-808, August.
    3. Lau, Lawrence J & Sheshinski, Eytan & Stiglitz, Joseph E, 1978. "Efficiency in the Optimum Supply of Public Goods," Econometrica, Econometric Society, vol. 46(2), pages 269-284, March.
    4. John S. Chipman, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, Oxford University Press, pages 347-385.
    5. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
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    Cited by:

    1. Friedrich Breyer & Stefan Hupfeld, 2010. "On the Fairness of Early-Retirement Provisions," German Economic Review, Verein für Socialpolitik, vol. 11, pages 60-77, February.
    2. Yueh, Linda, 2009. "Patent laws and innovation in China," International Review of Law and Economics, Elsevier, pages 304-313.
    3. András Simonovits, 2006. "Optimal Design of Pension Rule with Flexible Retirement: The Two-Type Case," Journal of Economics, Springer, pages 197-222.
    4. Jean-Baptiste Michau, 2011. "Optimal Redistribution with Intensive and Extensive Labor Supply Margins: A Life-Cycle Perspective," Working Papers hal-00639121, HAL.
    5. Martin Werding, 2007. "Versicherungsmathematisch korrekte Rentenabschläge für die gesetzliche Rentenversicherung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(16), pages 19-32, August.
    6. Heidler, Matthias & Raffelhüschen, Bernd & Leifels, Arne, 2006. "Heterogenous life expectancy, adverse selection, and retirement behaviour," FZG Discussion Papers 13, University of Freiburg, Research Center for Generational Contracts (FZG).
    7. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series 1370, CESifo Group Munich.

    More about this item

    Keywords

    delayed retirement credit; self-selection; moral hazard;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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