Campus Units

Economics

Document Type

Article

Publication Version

Published Version

Publication Date

7-2021

Journal or Book Title

Economic Inquiry

Volume

59

Issue

3

First Page or Article ID Number

1008

Last Page

1030

DOI

10.1111/ecin.12972

Abstract

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.

JEL Classification

D9, H55, E6

Comments

This article is published as Andersen, Torben M., Joydeep Bhattacharya, and Qing Liu. "Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions." Economic Inquiry 59, no. 3 (2021): 1008-1030. doi:10.1111/ecin.12972.

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Copyright Owner

The Authors

Language

en

File Format

application/pdf

Working Paper

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