Social Security Reform with Self-Control Preferences

Cagri Kumru and Athanasios Thanopoulos ()
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Athanasios Thanopoulos: Department of Economics, University of Pittsburgh

No 2010-11, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the "social security elimination" scenario loses ground very rapidly. In fact, in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals.

Keywords: funded social security; unfunded social security; self-control preferences (search for similar items in EconPapers)
JEL-codes: E6 H55 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-06
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Citations: View citations in EconPapers (1)

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http://research.economics.unsw.edu.au/RePEc/papers/2010-11.pdf (application/pdf)

Related works:
Journal Article: Social security reform with self-control preferences (2011)
Journal Article: Social security reform with self-control preferences (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2010-11

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