On the Commitment and partial naïveté: Early withdrawal penalties on retirement accounts

Pan Liu, Torben M. Andersen and Joydeep Bhattacharya

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: We analyze a portfolio allocation problem in a standard model of conflict within temporal selves who suffer from partial naïveté – the current self holds a deterministic but possibly wrong (underestimation) perception about the present bias of her future selves. The current self can invest in a liquid and a longer-maturity, illiquid asset; the latter offers partial commitment since the future self may prematurely liquidate it at a non-lump-sum cost. If the cost is made prohibitive, no liquidation happens, and the first-best plan laid out by the current self is followed. When such costs are more reasonable, raising them has countervailing income and substitution effects: the current self leaves less illiquid assets for her future self to potentially liquidate, but any given liquidation hurts more in terms of reduced resources available to later selves. In a range, a strengthening of the commitment device of illiquidity is not necessarily welfare increasing for the current self.

Date: 2022-12-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://dr.lib.iastate.edu/server/api/core/bitstre ... 8ffc68e09484/content
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Journal Article: Commitment and partial naïveté: Early withdrawal penalties on retirement accounts (2023)
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:isu:genstf:201911200800001097

Access Statistics for this paper

More papers in ISU General Staff Papers from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().