Rational Pension Products for Irrational People
Boston University - Department of Finance & Economics
Henriette M. Prast
December 30, 2008
The aim of this paper is to explore a new type of pension plan tailored to the needs and preferences of individuals living in Europe. The personal pension accounts that we propose are semi-tailored contracts that are rational when judged from the perspective of normative economic theory. Such contracts can be designed and marketed through an employer, a trade union, or other trusted institution so as to minimize agency costs and take advantage of scale economies. Moreover, they can be offered as optimal defaults to groups of plan members with similar characteristics. There is much that governments can do at very low cost to facilitate the efficient production of these contracts.
Keywords: pensions, behavioral economics, guarantees
Date posted: January 5, 2009