Policy Uncertainty and Information Flows: Evidence from Pension Reform Expectations

52 Pages Posted: 7 Oct 2019

See all articles by Emanuele Ciani

Emanuele Ciani

Bank of Italy

Adeline Delavande

University of Essex

Ben Etheridge

University of Essex

Marco Francesconi

University of Essex; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2019

Abstract

Subjective expectations about future policy play an important role in individuals' welfare. We examine how workers' expectations about pension reform vary with proximity to reforms, information cost, and aggregate information acquisition. We construct a new pan-European dataset of reform implementations and government announcements, and combine it with individual-level representative survey data on expectations about future reforms and country-level data on online search. We find: (1) Expectations are revised upward by about 10 percentage points in the year leading up to a reform, from a median of 50%, regardless of whether the reform is announced; (2) Aggregate online search increases after announcements, when the cost of information is lower; (3) Reform announcements and online information gathering are substitutes in the formation of expectations; (4) Expectations do not converge as a result of announcements or implementations; (5) The effect of information on expectations varies substantially across workers and systematically with observed characteristics that proxy cognitive ability and information value. These findings, interpreted using a model of rational inattention, reveal substantial informational rigidities, with welfare costs that run into trillions of Euros.

Keywords: Expectations, online search, Pension reform uncertainty, rational inattention, Reform announcement, retirement

JEL Classification: C8, D84, D91, J14

Suggested Citation

Ciani, Emanuele and Delavande, Adeline and Etheridge, Ben and Francesconi, Marco, Policy Uncertainty and Information Flows: Evidence from Pension Reform Expectations (September 2019). CEPR Discussion Paper No. DP13988, Available at SSRN: https://ssrn.com/abstract=3464515

Emanuele Ciani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Adeline Delavande

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Ben Etheridge

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Marco Francesconi

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873 534 (Phone)
+44 1206 873 151 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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