Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions
The classic Aaron–Samuelson result argues that pay‐as‐you‐go (PAYG) pension schemes cannot coexist with higher‐return, private, retirement‐saving schemes. The ensuing literature shows if agents voluntarily undersave for retirement due to myopia or time‐inconsistency, then a paternalistic, rationale...
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| Veröffentlicht in: | Economic inquiry 2021-07, Vol.59 (3), p.1008-1030 |
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| container_title | Economic inquiry |
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| creator | Andersen, Torben M. Bhattacharya, Joydeep Liu, Qing |
| description | The classic Aaron–Samuelson result argues that pay‐as‐you‐go (PAYG) pension schemes cannot coexist with higher‐return, private, retirement‐saving schemes. The ensuing literature shows if agents voluntarily undersave for retirement due to myopia or time‐inconsistency, then a paternalistic, rationale for PAYG pensions arises only if voluntary retirement saving is fully crowded out because of a binding borrowing constraint. This paper generalizes the discussion to the reference‐dependent utility setup of Kőszegi and Rabin (2009) where undersaving happens naturally. No borrowing constraint is imposed. We show it is possible to offer a non‐paternalistic, welfare rationale for return‐dominated, PAYG pensions to coexist with private, retirement saving. |
| doi_str_mv | 10.1111/ecin.12972 |
| format | Article |
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The ensuing literature shows if agents voluntarily undersave for retirement due to myopia or time‐inconsistency, then a paternalistic, rationale for PAYG pensions arises only if voluntary retirement saving is fully crowded out because of a binding borrowing constraint. This paper generalizes the discussion to the reference‐dependent utility setup of Kőszegi and Rabin (2009) where undersaving happens naturally. No borrowing constraint is imposed. 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| ispartof | Economic inquiry, 2021-07, Vol.59 (3), p.1008-1030 |
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| language | eng |
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| source | Wiley Online Library Journals Frontfile Complete; PAIS Index |
| subjects | dynamic efficiency Inconsistency Kőszegi–Rabin Myopia Pensions reference‐dependence Retirement Savings Welfare |
| title | Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions |
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