Social Security with Rational and Hyperbolic Consumers

Hans Fehr, Christian Habermann and Fabian Kindermann
Additional contact information
Christian Habermann: MLP Wuerzburg

Review of Economic Dynamics, 2008, vol. 11, issue 4, 884-903

Abstract: The present paper simulates the privatization of social security in an economy populated by overlapping generations of individuals that have time-consistent or time-inconsistent preferences, face mortality and individual income risk as well as borrowing constraints. We compute the transition path and compensate households in order to isolate the efficiency effects of the reforms. The model is calibrated to the German economy where the social security system offers little income insurance. Nevertheless, we find a positive role for social security due to the insurance provision against mortality risk and the provision of a commitment technology for present-biased consumers. In economies with rational consumers the elimination of social security yields an efficiency loss of roughly 0.6 percent of initial resources, while in economies with hyperbolic consumers the efficiency loss increases to 1.8 percent. (Copyright: Elsevier)

Keywords: Social security reform; Idiosyncratic uncertainty; Hyperbolic consumers (search for similar items in EconPapers)
JEL-codes: H55 J26 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2008.03.001
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Social security with rational and hyperbolic consumers" (2008)
Working Paper: Social Security with Rational and Hyperbolic Consumers (2006)
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:red:issued:06-227

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2008.03.001

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().