Hostname: page-component-7dd5485656-c8zdz Total loading time: 0 Render date: 2025-10-30T14:13:14.097Z Has data issue: false hasContentIssue false
  • English
  • Français

A NOTE ON SOCIAL SECURITY WELFARE WITH SELF-CONTROL PROBLEMS

Published online by Cambridge University Press:  15 July 2011

Alessandro Bucciol
Alessandro Bucciol*
Affiliation:
University of Verona, University of Amsterdam and Netspar
*
Corresponding author: Alessandro Bucciol, Department of Economics, University of Verona, Viale Università 4, 37129 Verona, Italy; e-mail: alessandro.bucciol@univr.it.
Get access Rights & Permissions [Opens in a new window]

Abstract

We develop an overlapping-generations model for a closed economy with uncertainty on labor income and mortality risk to show that unfunded social security programs may increase welfare in economies where agents are affected by self-control problems à la Gul and Pesendorfer (2001, Econometrica 69, 1403). We depart from the existing literature by setting the agent's preference parameters to match target levels of macro-variables observed in the real U.S. economy. In our approach, economies with tempted and nontempted agents are indistinguishable in terms of aggregate consumption, labor, and saving behavior when social security provides a replacement rate of 40% (as in the United States). This situation makes agents bear costly self-control problems over more years. Our simulations indicate that social security improves welfare with degrees of temptation equal to 11% or higher. A social security program with a replacement rate of 40% finds support for degrees of temptation not lower than 15%.

Keywords

Social SecurityTemptation Disutility ModelSelf-Control ProblemsOverlapping-Generation Models

Information

Type
Notes
Information
Macroeconomic Dynamics , Volume 15 , Issue 4 , September 2011 , pp. 579 - 594
Copyright
Copyright © Cambridge University Press 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Akerlof, George A. (1998) Self-control and saving for retirement: Comments and discussions. Brookings Papers on Economic Activity 1998, 185–189.Google Scholar
Ameriks, John, Caplin, Andrew, Leahy, John, and Tyler, Tom (2007) Measuring self-control problems. American Economic Review 97, 966–972.CrossRefGoogle Scholar
Auerbach, Alan J. and Kotlikoff, Laurence J. (1987) Dynamic Fiscal Policy. Cambridge, UK: Cambridge University Press.Google Scholar
Carroll, Christopher D. (2006) The method of endogenous gridpoints for solving dynamic stochastic optimization problems. Economics Letters 91, 312–320.CrossRefGoogle Scholar
Chatterjee, Satyajit, Corbae, Dean, Nakajima, Makoto, and Rios-Rull, José-Victor (2007) A quantitative theory of unsecured consumer credit with risk of default. Econometrica 75, 1525–1589.CrossRefGoogle Scholar
DeJong, David N. and Ripoll, Maria (2007) Do self-control preferences help explain the puzzling behavior of asset prices?. Journal of Monetary Economics 54, 1035–1050.CrossRefGoogle Scholar
DellaVigna, Stefano (2009) Psychology and economics: Evidence from the field. Journal of Economic Literature 47, 315–372.CrossRefGoogle Scholar
Diamond, Peter A. (1977) A framework for social security analysis. Journal of Public Economics 8, 275–298.CrossRefGoogle Scholar
Fehr, Hans, Christian, Habermann, and Kindermann, Fabian (2008) Social security with rational and hyperbolic consumers. Review of Economic Dynamics 11, 884–903.CrossRefGoogle Scholar
Gul, Faruk and Pesendorfer, Wolfgang (2001) Temptation and self-control. Econometrica 69, 1403–1435.CrossRefGoogle Scholar
Gul, Faruk and Pesendorfer, Wolfgang (2004) Self-control and the theory of consumption. Econometrica 72, 119–158.CrossRefGoogle Scholar
Hubbard, R. Glenn and Judd, Kenneth L.(1987) Social security and individual welfare: Precautionary saving, liquidity constraints, and the payroll tax. American Economic Review 77, 630–646.Google Scholar
Imrohoroglu, Ayse, Imrohoroglu, Selahattin, and Joines, Douglas H. (1995) A life cycle analysis of social security. Economic Theory 6, 83–114.CrossRefGoogle Scholar
Imrohoroglu, Ayse, Imrohoroglu, Selahattin, and Joines, Douglas H. (2003) Time inconsistent preferences and social security. Quarterly Journal of Economics 118, 745–784.CrossRefGoogle Scholar
Kumru, Cagri S. and Thanopoulos, Athanasios C. (2008) Social security and self control preferences. Journal of Economic Dynamics and Control 32, 757–778.CrossRefGoogle Scholar