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The Military Pension, Compensation, and Retirement of U.S. Air Force Pilots

Listed author(s):
  • John A. Ausink
  • David A. Wise

This paper uses the option value model of Stock and Wise to analyze the departure patterns of a sample of pilots in the United States Air Force. Pilot compensation and the military pension are described, as are some details of the option value model and two other models: the Annualized Cost of Leaving (ACOL) model, which is used by the Department of Defense, and a variant of a dynamic programming model proposed by Daula and Moffitt. The option value model captures departure behavior much better than the ACOL model, and substantially better than the dynamic programming model. The superiority of the option value model to the dynamic programming formulation raises the possibility that individual decision-making may not always be best modeled by a formulation that is intended to capture 'correct' economic financial calculations. This is consistent with findings by Lumsdaine, Stock and Wise for civilians in a Fortune 500 firm.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4593.

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Date of creation: Dec 1993
Publication status: published as Advances in the Economics of Aging, David A. Wise, ed., pp. 83-109, (Chicago: The University of Chicago Press, 1996).
Handle: RePEc:nbr:nberwo:4593
Note: AG LS
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  1. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity versus Predictive Validity," NBER Chapters,in: Topics in the Economics of Aging, pages 21-60 National Bureau of Economic Research, Inc.
  2. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
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