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Voiting on social security reform with heterogeneous agents

Author

Listed:
  • Juan Carlos Conesa
  • Dirk Krueger

    (Universitat de Barcelona)

Abstract

This paper analyzes the quantitative role of idiosyncratic uncertainty in an economy in which rational agents vote on hypothetical social security reforms. We construct an Overlapping Generations economy in which individuals face idiosuncratic risk with respect to their labor productivity and the labor-leisure decision is endogenous. We find that role of a pay-as-you-go social security system as a partial insurance device significantly reduces political support for a transition to an economy with a fully funded system. Also, smoother transitions have less political support than more rapid transitions. We conclude that the status quo bias in favor of an unfunded social security system is stronger in economies in which agents of similar age differ significantly with respect to labor earnings and wealth due to idiosyncratic uncertainty.

Suggested Citation

  • Juan Carlos Conesa & Dirk Krueger, 1998. "Voiting on social security reform with heterogeneous agents," Working Papers in Economics 36, Universitat de Barcelona. Espai de Recerca en Economia.
    • Handle: RePEc:bar:bedcje:199836
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    Citations

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    Cited by:

    1. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    2. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
    3. Attanasio Orazio P. & Kitao Sagiri & Violante Giovanni L., 2006. "Quantifying the Effects of the Demographic Transition in Developing Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-44, April.

    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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