Optimal Social Security with Loss Aversion

Brandon Lehr

Public Finance Review, 2025, vol. 53, issue 1, 62-93

Abstract: This article characterizes optimal social security in economies with agents who exhibit loss aversion. Two forms of loss aversion are explored. In the first, workers have a fixed retirement age and are loss averse over private savings. This motivates a more generous social security program. In the second, workers do no private savings but can choose their retirement age, exhibiting loss aversion over the foregone leisure time from delayed retirement. Social security benefits consequently rise steeper with retirement age and an earlier normal retirement age is optimal. In both cases, optimal policy is highly sensitive to the introduction of loss averse preferences.

Keywords: social security; loss aversion; optimal policy (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/10911421241261745 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:53:y:2025:i:1:p:62-93

DOI: 10.1177/10911421241261745

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications (sagediscovery@sagepub.com).