Optimal Retirement Policies with Present-Biased Agents

Journal of the European Economic Association, Volume 19, Issue 4, August 2021, Pages 2085–2130

67 Pages Posted: 1 May 2018 Last revised: 11 Nov 2022

See all articles by Pei Cheng Yu

Pei Cheng Yu

UNSW Australia Business School, School of Economics

Date Written: September 19, 2018

Abstract

This paper incorporates quasi-hyperbolic discounting into a Mirrlees taxation model to study the design of retirement policies for present-biased agents. I show that the government can improve the screening of productivity by exploiting time inconsistency. This is done by providing commitment to sophisticated agents and taking advantage of the incorrect beliefs of naive agents. This can be achieved even if the degrees of present bias and sophistication are private information. I also demonstrate how the government can implement the optimal mechanism using retirement savings accounts and social security benefits.

Keywords: Retirement Policy, Time Inconsistency, Optimal Taxation

JEL Classification: E62, E71, H21, H55

Suggested Citation

Yu, Pei Cheng, Optimal Retirement Policies with Present-Biased Agents (September 19, 2018). Journal of the European Economic Association, Volume 19, Issue 4, August 2021, Pages 2085–2130, Available at SSRN: https://ssrn.com/abstract=3156814 or http://dx.doi.org/10.2139/ssrn.3156814

Pei Cheng Yu (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

HOME PAGE: http://pcyu.weebly.com

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