Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions

Torben M. Andersen, Joydeep Bhattacharya and Qing Liu

Economic Inquiry, 2021, vol. 59, issue 3, 1008-1030

Abstract: The classic Aaron–Samuelson result argues that pay‐as‐you‐go (PAYG) pension schemes cannot coexist with higher‐return, private, retirement‐saving schemes. The ensuing literature shows if agents voluntarily undersave for retirement due to myopia or time‐inconsistency, then a paternalistic, rationale for PAYG pensions arises only if voluntary retirement saving is fully crowded out because of a binding borrowing constraint. This paper generalizes the discussion to the reference‐dependent utility setup of Kőszegi and Rabin (2009) where undersaving happens naturally. No borrowing constraint is imposed. We show it is possible to offer a non‐paternalistic, welfare rationale for return‐dominated, PAYG pensions to coexist with private, retirement saving.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/ecin.12972

Related works:
Working Paper: Reference-dependent preferences, time inconsistency, and pay-as-you-go pensions (2021)
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:bla:ecinqu:v:59:y:2021:i:3:p:1008-1030

Ordering information: This journal article can be ordered from
https://ordering.onl ... s.aspx?ref=1465-7295

Access Statistics for this article

Economic Inquiry is currently edited by Tim Salmon

More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().