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On Myopia As Rationale for Social Security

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  • Anderson, Torben M.
  • Bhattacharya, Joydeep

Abstract

It has been argued that "paternalistically motivated forced savings constitutes an important, and to some the most important, rationale for social security retirement systems." This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. If the competing asset is linear storage and myopic agents are allowed to borrow against future pension benefits, there is no welfare-rationale for pay-as-you-go pensions. In that case, sufficently-strong myopia may justify such pensions only if agents cannot borrow against their future pension, and are at a zero-saving corner. With enough myopia, co-existence of positive optimal pensions and positive private saving is possible if the return to saving declines with saving, as in a model with a neoclassical technology.

Suggested Citation

  • Anderson, Torben M. & Bhattacharya, Joydeep, 2008. "On Myopia As Rationale for Social Security," Staff General Research Papers Archive 12985, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12985
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    File URL: http://www2.econ.iastate.edu/papers/p1762-2008-08-29.pdf
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    References listed on IDEAS

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    1. Helmuth Cremer & Philippe De Donder & Dario Maldonado & Pierre Pestieau, 2009. "Forced Saving, Redistribution, and Nonlinear Social Security Schemes," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 86-98, July.
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    8. Andersen, Torben M. & Bhattacharya, Joydeep, 2013. "Unfunded Pensions And Endogenous Labor Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 17(05), pages 971-997, July.
    9. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, May.
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    Cited by:

    1. Torben M. Andersen, 2015. "How Should Pensions be Taxed? Theoretical Considerations and the Scandinavian Experience," CESifo Working Paper Series 5660, CESifo Group Munich.
    2. Andersen, Torben M. & Bhattacharya, Joydeep, 2016. "Why mandate young borrowers to contribute to their retirement accounts?," ISU General Staff Papers 201609260700001016, Iowa State University, Department of Economics.
    3. Bishnu, Monisankar & Wang, Min, 2017. "The political intergenerational welfare state," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 93-110.
    4. Caliendo, Frank N. & Guo, Nick L., 2014. "Roosevelt And Prescott Come To An Agreement," Macroeconomic Dynamics, Cambridge University Press, vol. 18(06), pages 1383-1402, September.
    5. Guo, Nick L. & Caliendo, Frank N., 2014. "Time-inconsistent preferences and time-inconsistent policies," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 102-108.
    6. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2016. "Public Pensions in a Multi-Period Mirrleesian Income Tax Model," CESifo Working Paper Series 6206, CESifo Group Munich.
    7. Marie-Louise Leroux & Pierre Pestieau & Gregory Ponthiere, 2011. "Optimal linear taxation under endogenous longevity," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(1), pages 213-237, January.
    8. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral economics and macroeconomic models," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 133-147.
    9. repec:ksa:szemle:1746 is not listed on IDEAS
    10. Andersen, Torben M. & Bhattacharya, Joydeep, 2013. "Unfunded Pensions And Endogenous Labor Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 17(05), pages 971-997, July.
    11. Min Wang, 2014. "Optimal education policies under endogenous borrowing constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 135-159, January.
    12. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1035-1046, December.
    13. Batabyal, Amitrajeet & Nijkamp, Peter, 2016. "On Pessimism and Optimism by Forward Looking Agents and the Need for Social Security," MPRA Paper 75965, University Library of Munich, Germany, revised 03 Jan 2017.
    14. Joanna Tyrowicz & Krzysztof Makarski & Marcin Bielecki, 2016. "Reforming retirement age in DB and DC pension systems in an aging OLG economy with heterogenous agents," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-36, December.
    15. Cheng, Chu-Chuan & Chu, Hsun, 2017. "Optimal Policies for Sin Goods and Health Care: Tax or Subsidy?," MPRA Paper 80183, University Library of Munich, Germany.

    More about this item

    Keywords

    myopia; pensions; social security; dynamic efficiency;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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