Title

Why mandate young borrowers to contribute to their retirement accounts?

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

2-2021

Journal or Book Title

Economic Theory

Volume

71

First Page or Article ID Number

115

Last Page

149

DOI

10.1007/s00199-019-01235-2

Abstract

Many countries, in an effort to address the problem that too many retirees have too little saved up, impose mandatory contributions into retirement accounts, that too, in an age-independent manner. This is puzzling because such funded pension schemes effectively mandate the young, who wish to borrow, to save for retirement. Further, if agents are present-biased, they disagree with the intent of such schemes and attempt to undo them by reducing their own saving or even borrowing against retirement wealth. We establish a welfare case for mandating the middle-aged and the young to contribute to their retirement accounts, even with age-independent contribution rates. We find, somewhat counter-intuitively, that pitted against laissez faire, mandatory pensions succeed by incentivizing the young to borrow more and the middle-aged to save nothing on their own, in effect, rendering the latter's present-biasedness inconsequential.

JEL Classification

H55, D91, D03, E6

Comments

This is a working paper of an article published as Andersen, T.M., Bhattacharya, J. Why mandate young borrowers to contribute to their retirement accounts?. Econ Theory 71, 115–149 (2021). doi:10.1007/s00199-019-01235-2. Posted with permission.

Copyright Owner

Springer Nature Switzerland AG. Part of Springer Nature.

Language

en

File Format

application/pdf

Published Version

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