Myopic Behavior and International Social Security Coordination

Posted: 2 Dec 2015

See all articles by Xue Wen

Xue Wen

IMT Institute for Advanced Studies

Date Written: November 19, 2015

Abstract

In a standard two-period overlapping generations model, two symmetric countries are involved, each with a PAYG pension system. This paper investigates the effects of myopic saving behavior on the optimal pension policy and the capital accumulation under both non-cooperative and cooperative schemes. Both the cases when pension authority maximizes the welfare function with only the current welfare of the living generations (myopic authority) and when it maximizes the lifetime welfare of the living generations are considered (farsighted authority). International cooperation among national pension authorities boosts capital accumulation when the international authorities are myopic. Moreover, the welfare gain from cooperation decreases with the size of the myopic agents in the economy. When the pension authorities are farsighted, international cooperation not necessarily depresses capital accumulation. However, if there are enough myopic agents in the economy, international cooperation also boosts capital accumulation.

Keywords: Social Security, OLG model, Myopia, International Coordination

Suggested Citation

Wen, Xue, Myopic Behavior and International Social Security Coordination (November 19, 2015). Available at SSRN: https://ssrn.com/abstract=2698016

Xue Wen (Contact Author)

IMT Institute for Advanced Studies ( email )

Complesso San Micheletto
Lucca, 55100
Italy

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