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On the optimality of public pensions in an economy with life-cyclers and myopes

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  • Frédéric Docquier

Abstract

In this paper, we develop a two-period overlapping generations model with two types of individuals, life-cyclers and myopes. We revisit Feldstein's problem by deriving the optimal level of social security using a social welfare function à la Samuelson (rather than à la Lerner). In opposition to the Lerner solution, our optimal pension benefit exhibits several interesting properties (dynamic efficiency, egalitarism, easy implementation). Then the opportunity to move to a partially funded system is examined. It turns out that a partially funded system ensures the equality of utility within and across generations. The effective use of funding opportunities is less a question of rate of return than a question of equal treatment of individuals. © 2002 Elsevier Science B.V. All rights reserved.

Suggested Citation

  • Frédéric Docquier, 2002. "On the optimality of public pensions in an economy with life-cyclers and myopes," ULB Institutional Repository 2013/229573, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/229573
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    Cited by:

    1. Cremer, Helmuth & Pestieau, Pierre, 2011. "Myopia, redistribution and pensions," European Economic Review, Elsevier, vol. 55(2), pages 165-175, February.
    2. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    3. Bairoliya, Neha & McKiernan, Kathleen, 2024. "The welfare costs of misinformation," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    4. Caliendo, Frank N., 2011. "Time-inconsistent preferences and social security: Revisited in continuous time," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 668-675, May.
    5. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    6. Axel Börsch-Supan & Klaus Härtl & Duarte N. Leite & Alexander Ludwig, 2023. "Preventing reforming unequally," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(4), pages 2889-2924, October.
    7. 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.
    8. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 375-401, July.
    9. Geri, Milva, 2022. "Pension arrangements and economic thinking: unreal assumptions and false predictions in the case of Argentina," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    10. Chu-chuan Cheng & Hsun Chu, 2018. "Optimal policies for sin goods and health care: Tax or subsidy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 412-429, April.
    11. Gahramanov Emin, 2016. "On the Demographics and the Severity of the Social Security Crisis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1001-1028, April.
    12. Mohamed Bouzahzah & Frédéric Docquier & Oliver Paddison, 2002. "Retraites, croissance et inégalités en présence d'individus myopes," Economie & Prévision, La Documentation Française, vol. 155(4), pages 31-44.
    13. 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.
    14. Erin Cottle Hunt & Frank N. Caliendo, 2022. "Social security and risk sharing: A survey of four decades of economic analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1591-1609, December.
    15. Andras Simonovits, 2009. "Underreported earnings and age-specific income redistribution in post-socialist economies," CERS-IE WORKING PAPERS 0927, Institute of Economics, Centre for Economic and Regional Studies.
    16. Frank N. Caliendo & Emin Gahramanov, 2009. "Hunting the Unobservables for Optimal Social Security," Public Finance Review, , vol. 37(4), pages 470-502, July.
    17. T. Findley & Frank Caliendo, 2009. "Short horizons, time inconsistency, and optimal social security," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 487-513, August.
    18. Frank N. Caliendo & T. Scott Findley, 2020. "Myopia, education, and social security," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 694-720, June.

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