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Household Saving Behavior and Social Security Privatization

Alisdair McKay ()

No WP2011-027, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: I develop a general equilibrium model of saving behavior in which the quality of nancial decisions is endogenously determined by the incentives to exert effort in learning about financial opportunities. The model generates predictions for asset holdings, asset market participation and returns across households. I apply the model to analyze a social security privatization reform. Privatization affects household search effort, asset market participation and the competitiveness of the asset market. Privatization reduces average welfare and this reduction is somewhat magni ed by the search frictions. While some have suggested that household decision making could be important to the consequences of privatization, my analysis does not bear this out.

Date: 2011-01
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