A Dynamic Model with Endogenous Retirement: Existence of Multiple Steady States

Liutang Gong, Nianqing Liu and Heng-Fu Zou (hzoucema@gmail.com)
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Nianqing Liu: Department of Economics, University of Iowa

No 561, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper extends Matsuyama's (2006) 0-1 endogenous-retirement choice in the second period to a framework with a continuous-endogenous-retirement choice to study consumption-saving decision and capital accumulation in an overlapping-generations model. The existence of the steady state is shown, and the conditions for the existence of multiple steady states are provided for both Matsuyama's (2006) 0-1 endogenous-retirement choice and the continuous-endogenous-retirement choice models, respectively. Different from Matsuyama's (2006) 0 or 1 labor choice (a full-time employee or a full-time retiree) in the steady state, a partial retirement may be a stable equilibrium under the continuous endogenous retirement choice in the second period. Therefore, partial retirement may be the optimal choice, and the retirement choice depends on the initial capital stock: if the initial capital stock is larger than a critical capital stock, then the individual will choose a relatively higher retirement level; if the initial capital stock is lower than a critical capital stock, then the individual will choose a relatively lower retirement level.

Keywords: Overlapping-generations model; Endogenous retirement; Multiple steady states (search for similar items in EconPapers)
JEL-codes: D91 J13 J26 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006
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