Retirement choices in Italy: what an option value model tells us

Michele Belloni and Rob Alessie

No 92, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: Using Italian data this study estimates the option value model in order to quantify the effect of financial incentives on retirement choices. As far as we know, this is the first empirical study which estimates the conditional multiple-years (CMY) model put forward by Stock and Wise (1990). This implies that we have accounted for dynamic self-selection bias. For the subsample of females the CMY model yields plausible estimates of the preference parameters such as the marginal utility of leisure. This last parameter is typically underestimated if one does not take into account the self-selection problem. From our results it becomes clear that dynamic self-selection results in a considerable downward-bias in the estimate of the marginal utility of leisure. We also performed a simulation study to gauge the effects of a dramatic pension reform. It turns out that the underestimation of the marginal utility of leisure translates into a sizable overprediction of the impact of the reform. For males we also obtain plausible estimates. The results for males should be interpreted with caution because we are not able to fully correct for dynamic self-selection bias.

Keywords: retirement; option value model; dynamic self-selection (search for similar items in EconPapers)
JEL-codes: C33 C34 C35 H55 J26 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-02
New Economics Papers: this item is included in nep-age
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Retirement Choices in Italy: What an Option Value Model Tells Us (2013)
Working Paper: Retirement Choices in Italy: What an Option Value Model tells us (2010)
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