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Theoretical Aspects of Retirement Decisions

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  • Miroslav Verbic

    (University of Maribor, Slovenia - Faculty of Economics and Business)

Abstract

Paper presents a survey of five different approaches to retirement decision analysis. Simple life cycle labour supply model leads to a classical optimization problem of choice between work and leisure, but it is highly limited in explaining retirement decision as a static approach. Comparative static version of this model enables the determination of income, wealth and social security on retirement decisions, but does not include neither the preference parameters of the individual or the expected value of future income flows. Merely the first problem can be solved by the reservation wage approach, but both problems are soluble by implementing a dynamic programming model. As an alternative to the latter, an option value approach is also discussed, which highly decreases the complexity, but does not lose a lot of reliability of the dynamic programming model.

Suggested Citation

  • Miroslav Verbic, 2002. "Theoretical Aspects of Retirement Decisions," Microeconomics 0201004, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0201004 Note: Type of Document - Adobe PDF; prepared on IBM PC; to print on HP; pages: 40; figures: included. Paper is in Slovenian language. Available also in English language (contact author).
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    References listed on IDEAS

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    More about this item

    Keywords

    ageing; dynamic programming model; early retirement; income effect; labour force participation; life cycle labour supply model; option value approach; pension; reservation wage; retirement decision; social security; substitution effect;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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