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Retirement Choices in Italy: What an Option Value Model tells us

Author

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  • Michele Belloni

    (CeRP, Collegio Carlo Alberto, Italy)

  • Rob Alessie

    (University of Groningen, Netspar, the Netherlands)

Abstract

Using Italian data, we estimate an option value model to quantify the effectof financial incentives on retirement choices. As far as we know, this isthe first empirical study to estimate the conditional multiple-years modelput forward by Stock and Wise (1990). This implies that we account fordynamic self-selection bias. We also present an extended version of thismodel in which the marginal value of leisure is random.The models yield plausible estimates of the preference parameters. Dynamicself-selection results in a considerable downward bias in the estimate of themarginal utility of leisure. We perform a simulation study to gauge theeffects of a dramatic pension reform. Underestimation of the value of leisuretranslates into sizeable over-prediction of the impact of reform. For thefemale sample, the model is able to predict almost perfectly the age-specifichazard rates. For the male sample, we obtain a good fit. Results for malesshould, however, be interpreted with caution since we are not able to fullycorrect for dynamic self-selection bias.

Suggested Citation

  • Michele Belloni & Rob Alessie, 2010. "Retirement Choices in Italy: What an Option Value Model tells us," Tinbergen Institute Discussion Papers 10-102/3, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20100102
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Santiago Pereda Fernández, 2016. "Copula-based random effects models for clustered data," Temi di discussione (Economic working papers) 1092, Bank of Italy, Economic Research and International Relations Area.
    2. Li, Jinjing & O'Donoghue, Cathal, 2011. "Retirement Choice Simulation in Household Settings with Heterogeneous Pension Plans," IZA Discussion Papers 5866, Institute for the Study of Labor (IZA).
    3. repec:eee:hapoch:v1_457 is not listed on IDEAS
    4. Peri, Giovanni & Romiti, Agnese & Rossi, Mariacristina, 2015. "Immigrants, domestic labor and women's retirement decisions," Labour Economics, Elsevier, vol. 36(C), pages 18-34.
    5. Peri, Giovanni & Romiti, Agnese & Rossi, Mariacristina, 2013. "Immigrants, Household Production and Women's Retirement," IZA Discussion Papers 7549, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    retirement; option value model; dynamic self-selection; unobserved preference heterogeneity;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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