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The Roles of Temptation and Social Security in Explaining Individual Behavior

  • Alessandro Bucciol

    ()

    (University of Padua)

I simulate a life-cycle model with preferences described by a utility function a' la Gul and Pesendorfer (2001). I show that temptation to consume contributes to explain the saving, retirement consumption, and asset allocation puzzles. I perform two analyses, with and without Social Security protection, separately for the US and Italy. The pension replacement rate is endogenous in the model and varies with income realizations. The results also show that the optimal behavior differs remarkably between the two countries when Social Security is considered. In particular, the more generous Italian system depresses savings and investments of more tempted individuals.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0032.

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Length: 47 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:pad:wpaper:0032
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