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Incentive Effects of Social Security Under an Uncertain Disability Option

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  • Börsch-Supan, Axel

    () (Sonderforschungsbereich 504)

Abstract

Incentive effects of pension systems are usually estimated under the assumption that the institutional environment provides a single optimal 'pathway' for retirement. However, many countries provide competing pathways which may include several early retirement options in addition to normal retire-ment. Moreover, early retirement options often comprise special provisions for disabled and unem-ployed workers that can be strategically manipulated by the employer and the employee while ultimate eligibility for such provisions is uncertain in advance. This paper shows that ignoring the endogeneity and/or uncertainty in the relevant institutional setting can severely bias the estimates of incentive effects. Ignoring the endogeneity leads to overestimated incentive effects that unduly exaggerate the 'pull' view of early retirement. In turn, when the uncertain option set is specified too generously, incentive effects are underestimated. The paper proposes several estimates to bound the true incentive effects of social security on early retirement, and applies them to the German public pension system.

Suggested Citation

  • Börsch-Supan, Axel, 2001. "Incentive Effects of Social Security Under an Uncertain Disability Option," Sonderforschungsbereich 504 Publications 01-42, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:01-42
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    Cited by:

    1. Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc.
    2. Barbara Berkel & Axel Börsch-Supan, 2003. "Renteneintrittsentscheidungen in Deutschland: Langfristige Auswirkungen verschiedener Reformoptionen," MEA discussion paper series 03031, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    3. Florian Heiss & Axel Börsch-Supan & Michael Hurd & David A. Wise, 2009. "Pathways to Disability: Predicting Health Trajectories," NBER Chapters,in: Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly, pages 105-150 National Bureau of Economic Research, Inc.
    4. Axel Börsch-Supan, 2010. "Work Disability: The Effects of Demography, Health, and Disability Insurance," NBER Chapters,in: Research Findings in the Economics of Aging, pages 37-58 National Bureau of Economic Research, Inc.
    5. Axel Börsch-Supan & Karsten Hank & Hendrik Jürges, 2005. "New Comprehensive and International View on Ageing: The Survey of Health, Ageing and Retirement in Europe," MEA discussion paper series 05075, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    6. Axel Börsch-Supan, 2007. "Work Disability, Health, and Incentive Effects," MEA discussion paper series 07135, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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