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Voting Over Type and Generosity of a Pension System when Some Individuals are Myopic


Helmuth Cremer


University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Philippe De Donder


Toulouse School of Economics - GREMAQ-IDEI

Dario Maldonado


Universidad del Rosario - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pierre Pestieau


University of Liege - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

September 1, 2006

CORE Discussion Paper No. 2006/79

Abstract:     
This paper studies the determination through majority voting of a pension scheme when society consists of far-sighted and myopic individuals. All individuals have the same basic preferences but myopics tend to adopt a short term view (instant gratification) when dealing with retirement saving. Consequently, they will find themselves with low consumption after retirement and regret their insufficient savings decisions. Henceforth, when voting they tend to commit themselves into forced saving. We consider a pension scheme that is characterized by two parameters: the payroll tax rate (that determines the size or generosity of the system) and the Bismarckian factor that determines its redistributiveness. Individuals vote sequentially. We examine how the introduction of myopic agents affects the generosity and the redistributiveness of the pension system. Our main result is that a flat pension system is always chosen when all individuals are of one kind (all far-sighted or all myopic), while a less redistributive system may be chosen if society is composed of both myopic and far-sighted agents. Furthermore, while myopic individuals tend to prefer larger payroll taxes than their far-sighted counterparts, the generosity of the system does not always increase with the proportion of myopics.

Number of Pages in PDF File: 29

Keywords: social security, myopia, dual-self model

JEL Classification: H55, D91

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Date posted: November 19, 2006 ; Last revised: April 4, 2011

Suggested Citation

Cremer, Helmuth and De Donder, Philippe and Maldonado, Dario and Pestieau, Pierre, Voting Over Type and Generosity of a Pension System when Some Individuals are Myopic (September 1, 2006). CORE Discussion Paper No. 2006/79. Available at SSRN: http://ssrn.com/abstract=945088 or http://dx.doi.org/10.2139/ssrn.945088

Contact Information

Helmuth Cremer (Contact Author)
University of Toulouse (GREMAQ & IDEI) ( email )
Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Philippe De Donder
Toulouse School of Economics - GREMAQ-IDEI ( email )
Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31015
France
+33 1 6112 8542 (Phone)
+33 1 6112 8637 (Fax)
Dario Maldonado
Universidad del Rosario - Department of Economics ( email )
Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany
Pierre Pestieau
University of Liege - Research Center on Public and Population Economics ( email )
Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium
+32 4 366 3108 (Phone)
+32 4 366 3106 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )
34 Vopie Roman Pays
Louvain la Neuve
Belgium
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