Who Cares About the Day after Tomorrow? Pension Issues When Households are Myopic or Time Inconsistent

37 Pages Posted: 29 Aug 2018

See all articles by Axel H. Börsch-Supan

Axel H. Börsch-Supan

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Klaus Härtl

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Duarte Nuno Leite

Max Planck Institute for Social Law and Social Policy; Universidade do Porto - CEF.UP - Center for Economics and Finance at UP

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Date Written: August 2018

Abstract

Pension economics has traditionally guided pension policy with the help of formal models based on individuals who think in a life‐cycle context with perfect foresight, full information, and in a time‐consistent manner. Associated macro models were mostly based on a single country. This paper sheds light on several aspects of pension economics when these assumptions do not hold using—to our knowledge—the first multi‐country model of procrastinating households. Our focus is on the interaction between the share of procrastinators in a country, the speed and extent of population aging, and the size of an existing PAYG‐DB pension system. Starting from the insight that procrastination reduces the volume of savings, we focus on three questions that are particularly relevant for the quickly aging Asian economies: What are the consequences for the balance between pay‐as‐you‐go and fully funded pension systems? Where will retirement savings be invested in a globally linked world with very different pension systems and demographics? How large are global spillover effects of pension reforms in one region for the other regions in the world?

Suggested Citation

Börsch-Supan, Axel H. and Härtl, Klaus and Leite, Duarte Nuno, Who Cares About the Day after Tomorrow? Pension Issues When Households are Myopic or Time Inconsistent (August 2018). Review of Development Economics, Vol. 22, Issue 3, pp. 953-989, 2018. Available at SSRN: https://ssrn.com/abstract=3240104 or http://dx.doi.org/10.1111/rode.12372

Axel H. Börsch-Supan (Contact Author)

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

HOME PAGE: http://www.mea.mpisoc.mpg.de

Klaus Härtl

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany
+49-(0)89-38602-351 (Phone)

HOME PAGE: http://mea.mpisoc.mpg.de/index.php?id=230&no_cache=1&tx_meamitarbeiteranzeige_pi1[showUid]=1133&cHas

Duarte Nuno Leite

Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

Universidade do Porto - CEF.UP - Center for Economics and Finance at UP ( email )

Rua Dr. Roberto Frias
Porto, 4200-464
Portugal

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