Social Security and Self Control Preferences

Posted: 12 May 2008

See all articles by Cagri S. Kumru

Cagri S. Kumru

Australian National University (ANU)

Athanasios C. Thanopoulos

University of Pittsburgh - Department of Economics

Abstract

We analyse the welfare effects of an unfunded social security system. We do so using an overlapping generations economy wherein agents have self-control preferences, face mortality risk, individual income risk, and borrowing constraints. Given our specification of preferences, unfunded social security helps reduce the agents' temptation to consume in every period; consequently, the welfare costs it otherwise entails are substantially mitigated. While both social security and self-control when considered separately reduce welfare, their combination renders this effect considerably less severe. Moreover, if the cost of resisting temptation is very high, the introduction of social security might even improve welfare.

Keywords: Quasi-hyperbolic discounting, self-control preferences, unfunded social security

JEL Classification: E6, H55

Suggested Citation

Kumru, Cagri S. and Thanopoulos, Athanasios C., Social Security and Self Control Preferences. Journal of Economic Dynamics and Control, Vol. 32, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=1129042

Cagri S. Kumru (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Athanasios C. Thanopoulos

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States

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