Designing Optimal Linear Rules for Retirement

Central European University Economics Department Working paper No. 6/2002

15 Pages Posted: 11 Mar 2003

See all articles by András Simonovits

András Simonovits

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS)

Date Written: 2002

Abstract

This paper applies the method of mechanism design to find optimal linear pension line rules (contribution rate and monthly benefit function) for flexible retirement: First the government announces a rule, making the benefit dependent on employment length. Individuals with different lifespans and utility functions optimize their employment lengths conditional on that rule. The government (knowing only the statistical distribution of the individual characteristics, but not the individual values) chooses an optimal linear rule, which maximizes the social welfare (e.g. the aggregated individual maxima) under a social constraint (e.g. the aggregated net lifetime contribution equals zero).

Keywords: flexible retirement, asymmetric information, actuarial fairness, mechanism design

JEL Classification: D82, D91, H55

Suggested Citation

Simonovits, András, Designing Optimal Linear Rules for Retirement (2002). Central European University Economics Department Working paper No. 6/2002, Available at SSRN: https://ssrn.com/abstract=349480 or http://dx.doi.org/10.2139/ssrn.349480

András Simonovits (Contact Author)

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

7621 Pécs, Papnovelde u. 22
Budapest, H-1112
Hungary

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