time inconsistent preferences and social security revisited in continuous time abstract imrohoroglu et al 2003 prove that it is impossible in a three period partial equilibrium model for social security to improve the welfare of a naive quasi hyperbolic agent if the program has a negative net present value this paper first generalizes their impossibility theorem to a continuous time setting and then proves analytically that no discount function exists that can rationalize a social security program with a negative net present value

social security liquidity constraints and pre retirement consumption one of the primary goals of the social security retirement program is the maintenance of consumption in old age in the past decade since the pioneering paper by feldstein 13 studies have examined the impact of the system on consumption over the entire life cycle and not just in old age empirical work has tested the impact on consumption of the individual wealth transfers accompanying the introduction of a pay as you go social security system extending this discussion of the impact of social security on pre retirement consumption hubbard 21 has shown in the context of lifetime uncertainty that even an actuarially fair fully funded social security system can raise lifetime consumption hence previous partial equilibrium estimates of the impact of social security on consumption drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are underestimates of the potential effect 2 an important assumption in the approaches cited above is that of perfect capital markets i e that individuals can borrow against prospective gains from participating in the social security system such an assumption is at variance with actual limitations on borrowing e g upward sloping interest rate schedules collateral requirements and quantity restrictions hayashi 18 found that approximately twenty percent of all consumption in the u s is accounted for by liquidity constrained consumers 3 flavin 16 found that the estimate of the marginal propensity to consume is affected dramatically by the inclusion of proxies for liquidity constraints suggesting that liquidity constraints are an important part of the observed excess sensitivity of consumption to current income since its inception in 1935 old age and survivors insurance oasi provided

the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

some microeconomic evidence concerning the determinants of saving through private pension funds in the u s abstract this note presents some new evidence about determinants affecting the contributions to private pension plans through the bargaining process employer decisions about pensions reflect employee preferences according to our estimation results on a time series basis there is a clear significant relationship between the firm variables social security taxes and saving through private pension plans

who would pay more for a fragrance free laundry detergent how health information affects valuation abstractfragrance allergy is a lifelong condition and the probability of being affected increases with frequent exposure to fragrance currently fragrance free laundry detergents are not common in supermarkets we used a contingent valuation among austrian consumers in a within respondent treatment to estimate how willingness to pay is influenced by health information we found that higher income groups have a higher willingness to pay for fragrance free detergents informing consumers about health impacts substantially increases this difference our simulation shows that lower income groups benefit from health information only if low priced fragrance free detergents are available on the market

myopia redistribution and pensions this paper reviews a number of recent contributions that study pension design with myopic individuals its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity this double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations which is at the heart of most of the results that are presented the main part of the paper is devoted to the issue of pension design when myopic individual do not save enough for their retirement because their myopic self with a high discount rate emerges when labor supply and savings decisions are made some extensions and variations are considered in the second part in particular we deal with situations where labor disutility or preferences for consumption are subject to habit formation and where sin goods have a detrimental effect on second period health myopic individuals tend to underestimate the effects of both habit formation and sinful consumption which complicates public policy

an experimental test on retirement decisions i introduction the reform of social security systems is now one of the main issues on the economic policy agenda of most industrialized countries it is widely considered that unless serious changes take place the aging of the population implying a rise in the number of retirees relative to that of workers will threaten the viability of pay as you go public pension systems in the long run this threat is being reinforced by the progressive reduction in the retirement age of the working population the central reforms that are being proposed to neutralize these future financing problems are the raising of the contribution rate the decreasing of pension benefits or and the delay of the retirement age with reference to this latter reform as blondal and scarpetta 1998 state a direct way to encourage people to work longer would be to raise the pensionable age but delaying the retirement age may not be very popular according to recent surveys most workers claim that they are happy with the current retirement age see cremer and pestieau 2003 this may help to explain why reforms on the legal retirement age have currently become a very delicate matter for governments 1 on the other hand pension systems in virtually all organization for economic cooperation and development oecd countries in the mid 1990s made it financially unattractive to work after the age of 55 see gruber and wise 1997 or blondal and scarpetta 1998 indeed the general consensus in the theoretical literature related to social security and retirement decisions is that pension systems create enormous incentives to leave the labor force early 2 therefore increasing the retirement age as a tool to improve the financial problems of public pensions systems faces two sensitive problems the opposition of workers to a delay in the standard retirement age and the disincentives to continuous work being embedded in the pension system the large decline in labor force participation is attributed to the specific fact that to keep on working implies a reduction in the present value of total pension benefits the terms old age pension wealth and implicit tax on postponing retirement have been frequently used to illustrate these disincentives in the pension system the old age pension wealth is the discounted value of expected pension benefits minus the discounted cost of obtaining such benefits after the earliest age at which pensions can be accessed working for an extra year may imply changes in this pension wealth by foregoing 1 yr of pensions paying contributions for an additional year and maybe increasing the pension benefits per year therefore if the costs of postponing retirement are higher than the gains then it is considered that the pension system is implicitly taxing to prolong the working period that is the drop in pension wealth acts as an implicit tax on income from continued work and as such is a clear incentive to retire early actually reforms aiming to increase the effective retirement age to improve the financial problems of public pensions systems have mainly focused on the reduction of this implicit tax on prolonging the working period it is also considered that when the increase in pension benefits is exactly offset by the higher cost in terms of contributions and forgone pensions the pension system is not distorting the retirement decision that is the pension systems that are marginally actuarially fair will not distort individual decisions concerning retirement age and consequently they are defined as neutral systems for this reason the main economic policy measures move in the direction of strengthening the link between lifetime contributions and pension benefits 3 indeed this reform is one of the policy conclusions of maintaining prosperity in an ageing society oecd 2000 the most appropriate reform would be to allow people to retire at the age of their own choice and to adjust pension level so that the pension system is neutral on average

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

do tax incentives for saving in pension accounts cause debt accumulation evidence from danish register data abstract this paper applies a quasi experimental research design on a danish 2010 policy that reduced tax incentives for saving in annuity pension schemes to show significant substitution of savings from retirement accounts to gross debt repayments we find that for every 1 danish currency unit reduction in retirement savings 31 cents goes to debt repayments taking into account all types of savings we find full crowding out consistent with previous findings we document that the effect is driven by a minority about 23 percent who actively rebalance their savings

valuation of landmass degradation using fuzzy hedonic method a case study of national capital region a hedonic model to determine the revealed willingness to pay for landmass of different suitability classes based on landmass functional characteristics obtained through subjective assessments is developed for the national capital region in india the inherent non specificity involved in subjective evaluation is minimized using fuzzy logic based regression technique the proposed fuzzy regression involves regression using central values of triangular fuzzy number and minimization of non specificity using linear programming the revealed willingness to pay for landmass of different suitability classes is used for valuation of disbenefits due to urban expansion on landmass of different agricultural suitability classes in national capital territory of delhi appropriate pricing policies to prevent the future inappropriate landuse practices are developed using the landmass valuation

capital accumulation and the characteristics of private intergenerational transfers many recent studies of the process of family accumulation in general and household response to social security in particular have revealed growing dissatisfaction with the life cycle theory of saving see for example barro 1978 kotlikoff 1979 darby 1979 kotlikoff and summers 1981 kurz 1981 blinder gordon and wise 1981 david and menchik 1982 leimer and lesnoy 1982 an alternative to the life cycle hypothesis is expressed by defining the preference of each family over its own consumption as well as the welfare of the generations that follow thus each family consists of an infinite chain of generations who have interdependent preferences and for this reason we shall call it the inter generational hypothesis it was recently used by barro 1974 1978 to attack the conclusions of the life cycle hypothesis our purpose in this paper is to start the long road of studying the structure of the private inter generational transfer system with the aim of providing additional tests of the two competing hypotheses

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

market segmentation strategies of multiproduct firms we analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs offering a targeted product has two effects utility increases for some consumers due to increased fit whereas utility decreases for others due to increased misfit previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation we show that in addition to the degree of fit and misfit the intensity of competition and the fixed cost of offering an additional product determine firms market segmentation strategies extending product lines to target more narrowly defined consumer segments has been a favorite strategy of brand managers for years popular buzzwords like one on one marketing and niche marketing underline its importance in practice in this context we ask to what extent market segmentation is justified from a profitability point of view consider a competitive environment in which each firm can either offer a general purpose product or segment the market by offering products that are tailored to consumers needs while a consumer ceteris paribus prefers a product that is targeted at her own segment she would rather buy a general purpose product than a product that is targeted at another segment segmenting the market therefore has two effects first if a consumer s preferred product is offered she is better off because she is able to buy a product that exactly fits her needs we call this positive aspect of market segmentation fit second if the consumer s preferred product is not offered she is worse off because she ends up with a product that does not satisfy her needs at all this negative aspect of market segmentation is denoted as misfit

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

bidimensional vertical differentiation in markets where product quality is important more than one characteristic is usually necessary for producers to define product quality standard theory maintains that i in a duopoly there will be a quality leader no matter whether the product can incorporate one or two vertical attributes ii differentiation pertains only to one attribute by contrast in our set up there are also equilibria where the quality leader is better in two attributes and others where there is cross leadership namely a situation where each firm designs a product to dominate the other in one characteristic applications to minimum quality standards and tax subsidy on quality products are sketched showing spill over effects from one to the other quality dimension

on the nature of competition with differentiated products there is an old debate going back to bertrand 1883 and edgeworth 1925 about the fragility of market equilibrium when competition arises among a few sellers it was hotelling s belief that price instability vanishes when products are differentiated hotelling 1929 recently attention was drawn to the fact that even if product differentiation can weaken the forces leading to price instability it cannot eliminate completely the possibility of price cycles d aspremont et al 1979 the purpose of this paper is to show that vertical and horizontal product differentiation do not operate in the same manner a stable market outcome including an endogenous product specification arises more frequently with the former than with the latter horizontal product differentiation is rooted in taste differences more precisely the potential customers have heterogeneous preferences about the proportion in which the attributes of the product should be combined a wide range of substitute products can then survive in the same market simply because each of them combines the various attributes of the product in a proportion suitable to a particular segment of customers between two products in the range the level of some attributes is augmented while that of others is lowered each variety has its own circle of customers exactly as the inhabitants located around a particular shop form its potential market none the less competitors can raid these privileged market shares by adequate price cuts by contrast vertical product differentiation refers to a class of products which cohabit simultaneously on a given market even though customers agree on a unanimous ranking between them between two products in the range the level of all attributes is augmented or lowered the survival of a low quality product then rests on the seller s ability to sell it at a reduced price compensating thereby for the higher a priori attractiveness of a more desirable quality the seller of a low quality product will specialise in the segment of customers whose propensity to spend on the corresponding range of products is low either because they have relatively lower income or relatively less intensive preferences than other customers at the same time the seller of a high quality product will enjoy an absolute advantage over his competitor 2 interestingly it turns out that price and product competition does not lead to the same results in these two situations regarding the stability of the market equilibrium to stress the differences we have chosen to concentrate on two

learning tastes through social interaction abstract this paper offers an information based model of social interaction and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly agents have uncertainty over their preferences but are aware that they are correlated with others so there exists an incentive to communicate with others in the population when a firm s good can be bundled with a coordination mechanism for its consumers its value is endogenously determined due to a consumption externality although this mechanism increases total surplus it is underprovided and consumer surplus decreases

national and international privatisation of pensions abstract the paper analyses the switch from pay as you go to funded pensions pensions privatisation in a world with many small open economies it contrasts go it alone privatisation in one country with world wide privatisation in the go it alone case at least one generation necessarily loses in the world wide case the long run gains are substantially larger and depending on the nature of production technology an intergenerational pareto improvement is possible this generates a potential isolation paradox each country may individually reject privatisation because some people will lose but this need not happen if all privatised simultaneously this problem occurs because the adoption of payg pensions in any one country imposes international externalities on other countries via the impact on world interest rates

social security and the retirement decision the effect of social security and private pensions on individual retirement decisions is modeled relaxing in turn three commonly maintained assumptions perfect capital markets actuarial fairness and certain lifetimes which together imply that there is no effect in each case raising the contribution level can cause systematic changes of either sign in general in individual retirement decisions for social security the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement but those effects that arise solely from the insurance aspect of social security and private pensions are ambiguous in sign owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer

congestion reducing investments and economic welfare in a hotelling model abstract we investigate optimal quality provision where quality is determined by congestion duopolists make congestion reducing investments and then compete in prices we find that an unregulated market leads to insufficient investment and that price cap below the equilibrium price eliminates this inefficiency

price competition in markets for dichotomous substitutes abstract the paper deals with price rivalry between two sellers of a differentiated good each firm occupies one of the two possible locations in the characteristics space considered this resembles real situations like the choice between dichotomous substitutes or examples coming from spatial economics the consumers population is partitioned in two groups according to preferences and the population density is constituted by two atoms transportation costs vary across consumers nevertheless the resulting firms demand functions share the continuity property at a non cooperative equilibrium the prices of the two goods differ and some consumers who rank highest the more popular brand find it convenient to purchase the less expensive alternative higher one firm concentration ratios are found to be consistent with lower equilibrium prices this last feature is verified comparing the non cooperative outcomes stemming from different original population densities

imperfect annuity markets unintended bequests and the optimal age structure of social security benefits the social security program now provides a constant real benefit throughout each retirees lifetime this paper examines whether total welfare would rise if benefits were lower in early retirement years when most individuals have some saving with which to finance consumption and higher in later years when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important the analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare this difference reflects the role of unintended bequests the provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests while those bequests may have no value to the retirees they are clearly of value to the young workers who will receive those bequests more generally the system of level benefits raises the steady state level of the capital stock and of total real income the present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old this abstract was borrowed from another version of this item

social security reform with impure intergenerational altruism abstract this paper studies the long run aggregate and welfare effects of eliminating social security in a quantitative dynamic general equilibrium life cycle model where parents and their children are linked by voluntary and accidental bequests social security in this model with impure altruism has a smaller effect on capital accumulation than in a pure life cycle model a bigger effect than in a model with two sided altruism the welfare gain of eliminating social security system under impure altruism is smaller than that in a pure life cycle model and bigger than that in a model with two sided altruism

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

chilean pension reform coverage facts and policy alternatives as opposed to defined benefit pension schemes which are showing sustainability problems around the world individual capitalization systems are seen as financially solvent however there has been some controversy during the last years with respect to this system s ability to provide adequate pensions nevertheless in any contributory system defined benefit or defined contribution the performance of labor markets is crucial the lack of contributions in the first case would imply financial problems or exclusion and lower pensions in the second this article presents an analysis of how different variables affect the pension level in an individual capitalization scheme assessing their relative importance then individual level administrative data combined with survey information is used to project pension benefits the results show that a considerable percentage of the population would not be able to self finance an old age pension higher than the level of the minimum pension guarantee in expected terms moreover most of them would not be entitled to get state funding to obtain a pension of that amount however the heterogeneity of individuals implies that there are very different situations and that not all of those who receive a low pension are vulnerable when old there are cases in which individuals have other types of savings or in the case of women they might live of their husband s pension or widow pension benefit if diseased additionally two possible reforms are explored and their potential impact is evaluated the default contribution for self employed and the extension of the minimum pension guarantee for a broader range of contribution periods not just 20 years

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

fiscal policies capital formation and capitalism abstract this lecture examines the effect of tax policy and social security retirement benefits on capital accumulation and economic welfare the paper begins by examining how capital income taxes reduce the real return to savers and then discusses the welfare loss of capital income taxation relative to the alternatives of taxing consumption and labor income the analysis shows that capital income taxes impose a very substantial deadweight loss even if they do not alter private saving the first section of the paper also discusses the theory and empirical literature on the effect of capital income taxes on national saving the second part of the lecture deals with social security retirement benefits in 1994 the aged members of the u s population will receive cash and medical benefits that cost the government 530 billion or 16 000 per person over age 65 the likely impact of these benefits on private saving and the empirical evidence on this subject are then reviewed the second part of the paper concludes by discussing the welfare loss of unfunded social security benefits and the possibilities for alternative arrangements a final section discusses the implications of international capital flows for this analysis as capital flows become more important particularly in europe the response of government policy may be to compete for foreign capital inflows and to tax domestic savers more heavily this would lead to a smaller total volume of capital the sharp decline in the net national saving rate from more than 8 percent of gdp in the united states in the 1970s to only 4 5 percent in the 1980s and from more than 14 percent of gdp in europe in the 1970s to 9 9 percent in the 1980s may not only create lower real incomes and slower growth but may weaken capitalism itself in the united states a decade of slow growth has increased protectionist tendencies in international trade and led to a new interest in industrial policies that expand the role of government in guiding the direction of technology and of private investment in these ways the government policies that discourage saving might make the schumpeterian vision of a shift from private capitalism to a government dominated economy more likely

social security and self control preferences abstract we analyze the welfare effects of an unfunded social security system we do so using an overlapping generations economy wherein agents have self control preferences face mortality risk individual income risk and borrowing constraints given our specification of preferences unfunded social security helps reduce the agents temptation to consume in every period consequently the welfare costs it otherwise entails are substantially mitigated while both social security and self control when considered separately reduce welfare their combination renders this effect considerably less severe moreover if the cost of resisting temptation is very high the introduction of social security might even improve welfare

pension wealth and household savings tests of robustness abstract a substantial literature exists on the impact of pension schemes both public and private on the level of household saving yet there is no clear consensus on the impact of pensions on private saving in this paper we show how beliefs about this displacement effect are modified by prior beliefs both about variables which might be relevant in an equation for private savings and about the magnitude of the displacement effect using data for 8279 canadian households and estimates of pension wealth both private and social security which we construct for each household in the sample the estimated displacement effects are found to be relatively robust with respect to both types of prior belief

ricardian equivalence long run leviathan abstract this paper presents a heterogenous overlapping generations with altruism model in which intergenerational discounting is stochastic the model nests three popular macroeconomics models those of ramsey economic journal 38 152 1928 543 559 diamond american economic review 55 1965 1126 1150 and a variant of the blanchard journal of political economy 93 2 1985 223 247 buiter the economic journal 98 391 1988 279 293 weil journal of public economics 38 2 1989 183 198 model it is shown that under a mild condition originally derived by weil journal of monetary economics 19 3 1987 377 391 the long run capital intensity is robust to practically every popular theoretical criticism of the standard ricardian model these criticisms include the imperfect inheritability of time preference parameters and hence finite horizons on the part of all households myopia in the form of overly discounting the future borrowing constraints distortionary labor taxation exchange strategic bequest motives common cultural constraints egalitarian bequests and primogeniture endogenous fertility and joy of giving while precautionary saving can theoretically violate long run neutrality the asymptotic capital intensity is still bounded below by preference parameters the overall conclusions are sharply at odds with those found in most articles dealing with the theoretical foundations of ricardian equivalence

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

distribution of income and toxic emissions in maine united states inequality in two dimensions abstract ecological distribution refers to inequalities in the use of environmental sinks and sources this article explores one such dimension of ecological distribution that of toxic air emissions using data from the risk screening environmental indicators model and the united states census bureau i analyze the distribution of both environmental risk and income at the block group level in the state of maine the state of maine was chosen for its historical dependence upon natural resources as well as its economic and spatial heterogeneity results clearly indicate that the toxic air emissions are distributed much more unequally than is income and that those inequalities are reinforcing while not in itself an indication of environmental injustice such analyses may help us to rethink the assumption that there is a tradeoff between income and pollution

social security national policies with international implications social security policies within individual countries are determined independently by national governments but the resulting outcome is inefficient compared with what would result from the international co ordination of policies this is because national social security policies produce international externalities via their effects on world interest rates an illustrative example suggests that the gains from co ordination are potentially significant virtually all countries operate social security or redistributive policies each chooses policies independently and to my knowledge no one either in a policymaking context or in the large literature on international policy co ordination has suggested that such decisions would benefit from international coordination 1 however a simple argument suggests that independent national social security policies are inefficient more specifically in the long run national governments make policy decisions which are too egalitarian this holds provided that social security lowers national saving in this case each national government faces a trade off between income redistribution and national saving and can be assumed to locate at the nationally optimal point on this trade off taking as given the world interest rate the latter is clearly not independent of the combined effect of all countries policies however if all countries expand social security the resulting fall in world saving will raise the world interest rate with adverse consequences for each national economy each country rationally ignores its own small contribution to the global outcome if this international externality were internalised by co ordination countries would relocate on the trade off between income redistribution and national saving demonstrating the existence of an externality says nothing about its quantitative significance i address this with an example which focuses on pay as you go payg retirement pensions in an economy with a mixture of forward looking and myopic individuals the pensions prevent destitution among retired myopes and thus effectively redistribute life time welfare but they also lower saving because of payg financing for all parameter values considered international co ordination of pensions policy decisions generates welfare gains which are larger for many parameter values substantially larger than recent estimates of the welfare gains from either the entire elimination of all cyclical fluctuations or the reduction of inflation and nominal interest rates from suboptimally high to optimal levels hence the issues addressed in the paper are quantitatively significant when judged against other frequently advocated i am grateful to two anonymous referees for helpful comments on earlier versions they are not responsible for the present version

the effect of social security on lifetime wealth accumulation and bequests this paper is an empirical study of the effects of social security on lifetime wealth accumulation and bequests using a sample of wisconsin males we have matched lifetime earnings records from income tax returns with their social security account records and their bequests obtained from probate court records since the cohort of males was born between 1890 and 1899 they represent a cohort that saw a great change in the size and coverage by occupation of the system hence there is substantial within cohort variation in social security wealth from which effects can be estimated for nearly 30 years the life cycle theory of savings has enjoyed an enormous amount of academic support in the no bequest variant individuals save with the sole intention of consuming their savings in later years the economy wide stock of capital can therefore be generated by this pattern without any reliance on bequests modigliani 1966 such a model will lead to rather strong predictions about the effect of a pay as you go public pension hereafter social security on private savings as feldstein 1974 points out social security should displace private savings as well as reduce macro saving since the programme is unfunded this result follows from the assumption that each household will consume all of its assets during its own lifetime some recent research however has been at odds with the no bequest variant of the life cycle model see kurz 1984 and included references darby 1979 claims that life cycle assets savings consumed later in the life cycle constitute only 13 29 per cent of total assets kotlikoff and summers 1981 report that the major share nearly 80 per cent of capital stock in the united states is due to intergenerational transfers 2 indeed these authors write life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers p 706 in addition recent empirical work suggests that people tend to accumulate or fail to significantly decumulate wealth wealth in old age a finding at odds with the strict life cycle model 3 given the potentially large role of bequests in the process of capital accumulation it is important to know how bequests are affected by the large public programme that social security has become even if social security depresses private savings among those near or at retirement if people bequeath it is conceivable that saving during retirement is augmented by the programme 4 aside from the issue of savings effects the response of people s bequests to their old age benefits might allow one to assess the target efficiency of the social security system since the original objective of the system was to ensure adequate levels of consumption among the elderly a finding that benefits

measuring the benefits of air quality improvements a hedonic salary approach abstract this paper estimates the compensating variation associated with nonmarginal changes in air quality using a hedonic salary model and 1970 data collected for a national sample of university professors recent advances in the theory of hedonic prices are utilized in constructing the theoretical model and formulating a procedure for generating empirical estimates lower bound estimates of the compensating variation associated with a one standard deviation increase in total suspended particulates 27 6 mgs cu meter 24 hours were 419 for full professors 234 for associate professors and 209 for assistant professors in 1970 these results were not sensitive to the specification of the hedonic salary equation

saving and the life cycle a cohort analysis abstract this paper examines the life cycle hypothesis with reference to japanese employees the study is based on panel data created from successive cross section data which is expected to give better results than past studies the sample was categorized by many elements one important result is that empirical testing of saving and the life cycle is crucially dependent upon the samples it is found that the majority of japanese employees have not accumulated wealth enough to assure consumption during retirement the paper however did not reject a hump shaped course of wealth accumulation under the assumption of myopic behavior

social security reform with self control preferences abstract this paper analyzes a fully funded social security system under the assumption that agents face temptation issues agents are required to save through individually managed personal security accounts without and with mandatory annuitization when the analysis is restricted to crra preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare however when self control preferences are introduced and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly in fact in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative under the light of the above findings any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

voting over type and generosity of a pension system when some individuals are myopic this paper studies the determination through majority voting of a pension scheme when society consists of far sighted and myopic individuals all individuals have the same basic preferences but myopics tend to adopt a short term view instant gratification when dealing with retirement saving and labor supply consequently they will find themselves with low consumption after retirement and regret their insufficient savings decisions henceforth when voting they tend to commit themselves into forced saving we consider a pension scheme that is characterized by two parameters the payroll tax rate that determines the size or generosity of the system and the bismarckian factor that determines its redistributiveness individuals vote sequentially we examine how the introduction of myopic agents affects the generosity and the redistributiveness of the pension system our main result is that a flat pension system is always chosen when all individuals are of one kind all far sighted or all myopic while a less redistributive system may be chosen if society is composed of both myopic and far sighted agents furthermore while myopic individuals tend to prefer larger payroll taxes than their far sighted counterparts the generosity of the system does not always increase with the proportion of myopics

good vs bad characteristics in vertical differentiation abstract we consider a vertically differentiated duopoly where product quality is defined as the combination of n characteristics good respectively bad characteristics are those which increase decrease utility with respect to the status quo we prove that maximum minimum differentiation obtains along all characteristics respect to which marginal profits are positive negative

optimal fiscal policy in the design of social security reforms the quantitative literature has documented that a privatization of the social securitysystemgenerateslargelong runwelfaregainsatthecostofwelfarelosses for transition generations in this article we maximize over the entire policy space following the optimal fiscal policy approach the resulting allocation by construction lies on the constrained pareto frontier we find that the optimal design of reforms exhibits sizeable welfare gains arising from a reduction in labor supply distortions in contrast the welfare gains coming from the reduction of savings distortions are relatively small

labor supply elasticity and social security reform abstract previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution ies in labor in this paper we show that the effects of social security reforms on aggregate labor supply are invariant to plausible values of the ies but the effect of such reforms on the profile of hours over the life cycle is highly sensitive to the ies we first establish these results analytically in a simple partial equilibrium setting and then demonstrate their robustness in a general equilibrium model calibrated to match key u s macroeconomic indicators we find that the aggregate effects are similar regardless of the wide range of the values of ies used in calibrated economies however social security reform leads to a large reallocation of hours worked over the life cycle from early years to later working years and the size of this reallocation significantly increases with the ies

bounded rationality lifecycle consumption and social security abstract this paper explores an overlapping generations model of bounded rationality in which consumers only foresee the future over a subset of their life span we focus in particular on whether the model can in general equilibrium produce a hump shaped lifecycle consumption profile with a peak that matches data for the average u s consumer for a simple four period model we show that an increasing income profile along with exogenously imposed retirement are sufficient to induce a hump with no other mechanism that can account for a hump besides bounded rationality the model best fits the salient features of consumption data with a planning horizon of 20 years which is well supported by the behavioral evidence found in surveys on retirement planning finally we show that the age of the consumption peak is robust to the introduction of social security mortality risk and another species of bounded rationality quasihyperbolic discounting moreover social security can be welfare improving with a short planning horizon we can calibrate the model to jointly explain the timing of the consumption hump and the optimality of the current social security system with quasihyperbolic discounting instead we can calibrate the model so the current social security system is optimal but we cannot also account for the timing of the consumption hump if we add quasihyperbolic discounting in addition to a short planning horizon the present bias has a negligible effect in equilibrium

pass through of the policy induced e85 subsidy insights from hotelling s model abstract we build a structural model of imperfect competition for a retail market that supplies both low ethanol e10 and high ethanol e85 gasoline blends the model permits us to study some impacts of the e85 subsidy induced by the u s renewable fuel standard specifically how the pass through of this subsidy to retail prices is affected by market power the model is rooted in hotelling s horizontal differentiation framework which is extended to also represent the imperfect substitutability between e10 and e85 a vertical product differentiation attribute the model naturally captures two sources of imperfect competition in the fuel market refueling stations market power arising from their spatial location and limited availability of e85 stations we derive both analytical and numerical solutions for nash equilibrium outcomes under various scenarios in our baseline parameterization when the penetration of e85 stations is incomplete we find that the pass through rate is about 0 7 complete penetration of e85 stations leads to near complete pass through notwithstanding the market power enjoyed by stations because of their spatial location with monopolistic market power e g collusion however with full penetration of e85 stations the pass through rate is lower moreover when market power only arises from location differentiation duopoly model with full penetration of e85 the pass through rate converges to one as the subsidy gets large whereas it converges to zero if a station has exclusivity in selling e85 partial penetration of e85 or there is collusion monopoly power from collusion

environmental cleanliness as a public good welfare and policy implications of nonconvex preferences abstract this paper explores the implications of a form of nonconvexity in individual preferences over the public good cleanliness the implications of this nonconvexity on equilibrium outcomes welfare analysis the process of development and optimal government policy are examined the nonconvexity can imply a role for government in providing a commitment to a clean environment even if the government has a cost disadvantage in cleaning compared with individuals by providing a credible commitment to a clean environment the government can induce private individuals to undertake optimal levels of cleaning on their own

forced saving redistribution and nonlinear social security schemes this paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia myopic individuals may not save enough for their retirement the welfare function is paternalistic the rate of time preference of the farsighted is used for both types we show that the solution does not necessarily imply forced savings for the myopics paternalistic considerations are mitigated by incentive effects numerical results suggest that as the proportion of myopic individuals increases there is less redistribution and more forced saving and the desirability of social security increases

pay as you go public pensions with endogenous fertility abstract veall s 1986 model of public pensions is generalized to allow for endogenous fertility we show that gifts to the old which can be viewed as social security contributions are always positive in the steady state an optimal stationary allocation is sustainable if savings are zero and fertility is exogenous however the optimal allocation is in general not sustainable in particular if a government enforces a social security plan setting the pension level at the optimal gifts and individuals optimize under the pension constraint the resulting sustainable outcome is in general different from either the optimal or nash outcome

social security uncertainty adjustments and the consumption decision this paper analyzes the consumption decision focusing on the degree of substitutability between fungible assets and prospective wealth and on the different risk adjustments associated with different types of prospective wealth the results reveal substantial differences among these risk adjustments and imply that a dollar of social security wealth substitutes for about three fifths of a dollar of fungible assets although implying that social security wealth reductions would have a positive and sizeable effect on private saving the results also suggest that such reductions could entail a substantial loss in consumer welfare copyright 1992 by the london school of economics and political science

market and welfare effects of second generation consumer oriented gm products we examine the economic effects of the introduction of consumer oriented genetically modified gm products into the food system by developing a model of heterogeneous consumers and producers that allows for vertical and horizontal differentiation between the products available to consumers the model facilitates the estimation of consumer and producer surpluses in the product utility and product net returns spaces results show that the introduction of consumer oriented gm products can change the relationship between gm and conventional and organic products from one of vertical to one of horizontal product differentiation and can enhance both economic welfare and the market acceptance and growth of agricultural biotechnology

saving social security and uncertainty since alteration of the saving behavior of the present working generation may have such a significant impact on capital stock growth some concern has arisen about the effect of the social security system on saving behavior in response to this concern numerous empirical and theoretical analyses have been forthcoming most of the theoretical analyses either in the form of overlapping generations models 9 11 or simpler life cycle models 6 15 have indicated that unless specific parameter values utility functions and in some cases production functions are chosen the effect of a social security system on saving is indeterminate for example kurz 11 has shown that the introduction of a simple pay as you go social security system in an overlapping generations model in which individuals do not have a leisure choice will not have a predictable effect on the steady state level of the capital stock unless parameter values and the form of the production function are known similarly in life cycle models that include a leisure choice the effect of social security is difficult to determine although feldstein 6 shows that when the leisure choice is suppressed in such a model a social security system will have a negative impact on saving this indeterminacy has not been completely resolved by empirical work although the bulk of evidence 7 8 10 12 tends to support the view that social security has depressed saving in the past unfortunately with the exception of the work of sheshinski and weiss 16 little of the theoretical analysis deals with the effect on saving behavior of participants who are faced with uncertainty about future prices wages and social security benefits sheshinski and weiss have shown that in an overlapping generations model with uncertain lifetimes the effect of increasing the role of social security through balanced increases in benefits and contributions will actually lead to an increase in saving their analysis however does not include a leisure choice nor does it deal with other forms of uncertainty facing participants consequently we still lack more complete answers to the following basic questions will the introduction of a social security program in the presence of uncertainty

the effects of pensions on household wealth a reevaluation of theory and evidence this paper examines the extent to which households offset pension wealth with reductions in other wealth systematic econometric biases imply that the estimated offsets in previous empirical studies are smaller than the true offset and may even have the wrong sign new empirical estimates that do not correct for the biases generate little offset between pensions and other wealth estimates that correct for the biases show substantially more offset a smaller impact of pensions on overall saving than in most previous studies the estimates also indicate that the effects of pensions on wealth vary significantly across households

social security investment in equities this paper explores the general equilibrium impact of social security portfolio diversification into private securities either through the trust fund or private accounts the analysis depends critically on heterogeneities in saving production assets and taxes limited diversification weakly increases interest rates reduces the expected return on short term investment and the equity premium decreases safe investment increases risky investment and increases a suitably weighted social welfare function however the effects on aggregate investment long term capital values and the utility of young savers hinges on assumptions about technology aggregate investment and long term asset values can move in opposite directions jel h55

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

declining public pensions in an era of demographic ageing will private provision fill the gap abstract demographic crisis and imprudent commitments have induced a crisis in public pension programmes in oecd countries will present and prospective cutbacks lead to greater private saving either in the form of private pension provision or in other forms of saving the paper surveys existing evidence and provides new results on three questions do individuals substitute private for public provision of savings when public pension programmes are cut back voluntarily do individuals respond to incentives to join sponsored or tax subsidised arrangements if encouraged by the government and if individuals are prepared to make such arrangements and where saving is voluntary do they save enough to replace previous prospective public pension flows

horizontal and vertical differentiation the launhardt model we show how the spatial duopoly proposed by launhardt in 1885 where firms have access to different transportation technologies allows one to model in a simple and elegant way the two major types of product differentiation i e horizontal and vertical we consider the cases where firms are located near the market end points or near the market center launhardt s analysis of price determination is then extended by allowing firms to choose strategically their transportation rates subgame perfect nash equilibria involve minimum maximum vertical product differentiation when horizontal product differentiation is large small enough

monopolistic competition and general purpose products most models of monopolistic competition study the question of the optimal degree of product differentiation by looking at the number of firms that will locate in characteristics space this is somewhat restrictive the development of general purpose products means that the needs of quite heterogenous consumers can be satisfied with the same homogenous product the private and social incentives to produce general purpose products are studied in this paper within the circular road model of monopolistic competition the degree of general purposeness of a product is approximated by its per unit distance transport costs it is shown that there are strong forces leading the market to supply products whose transport costs are excessively low

on the optimality of public pensions in an economy with life cyclers and myopes in this paper we develop a two period overlapping generations model with two types of individuals life cyclers and myopes we revisit feldstein s problem by deriving the optimal level of social security using a social welfare function a la samuelson rather than a la lerner in opposition to the lerner solution our optimal pension benefit exhibits several interesting properties dynamic efficiency egalitarism easy implementation then the opportunity to move to a partially funded system is examined it turns out that a partially funded system ensures the equality of utility within and across generations the effective use of funding opportunities is less a question of rate of return than a question of equal treatment of individuals

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

the impact of public pensions on personal retirement saving in canada some evidence from cross section data during recent years much attention has been focused on the question of whether or not public retirement income systems have an adverse effect on personal saving the concern has been expressed in a number of countries that if there is any reduction in saving it could result in a lower rate of capital accumulation and as a consequence slower productivity growth unfortunately the theoretical literature on the subject is inconclusive within the framework of a life cycle model where saving and retirement decisions are made jointly the overall effect of public pensions is ambiguous depending on the relative strengths of the wealth replacement effect and the induced retirement effect 9 10 the former effect reduces saving while the latter tends to increase it the issue is further complicated by the possibility that individuals might attempt to vitiate what the public pension system does through offsetting changes in private intergenerational transfers in the form of bequests 1 14 it would appear therefore that only empirical evidence can determine the extent to which public pensions affect personal saving whereas in the united states a great deal of research much of it with conflicting results has been devoted to shedding further light on this very important issue in canada the subject has been somewhat neglected what little evidence there is however lends little support to the popular view that public pension programs such as old age security oas and the canada pension plan cpp have had a negative effect on saving boyle and murray in their recent study conclude from time series regressions that canada s public pension plans have had no visible effect on household savings behaviour 2 467

location taxation and governments an exchange theory of intellectual property abstract the standard economic model of intellectual property is an efficient property rights solution to a market failure problem of investment in a non rival and non excludable good we propose an exchange theory of intellectual property based on a contracting approach in the context of market making and enforcement of economic rights in exchange for monopoly taxation rights we use a hotelling 1929 type spatial model to show the relationship between location and pricing decisions of innovating firms under differing intellectual property institutional quality and taxation regimes

attitudes towards foreign products and international price competition in this paper we analyse price competition between firms established in different countries when demand is sensitive to national biases the intensity of this bias varies across consumers in this context trade arises because of the dispersion of consumers perception of the foreign good when consumer attitudes are diverse enough one firm concentrates on consumers with an intensive bias leaving room for the other which will serve consumers with a low bias next an increase in import tariff will unambiguously lead to a general increase in price since in equilibrium the domestic firm will decide to increase margins finally we identify conditions under which buy domestic campaigns increase local welfare and output attitudes envers les produits etrangers et concurrence internationale par les prix dans ce memoire les auteurs analysent la concurrence par les prix entre firmes etablies dans divers pays quand la demande est sensible a certaines preferences de caractere national l intensite de ce biais varie selon les consommateurs dans ce contexte le commerce international est possible parce que il y a une certaine dispersion de la perception du produit etranger par les consommateurs locaux quand les attitudes des consommateurs varient beaucoup une firme se concentre sur les consommateurs qui ont un biais important laissant assez d espace a l autre firme pour qu elle puisse servir les consommateurs qui ont un biais plus faible un accroissement du niveau des droits de douane entraine inevitablement un accroissement general du niveau de prix puisque en equilibre la firme locale va decider d augmenter ses marges on identifie les conditions qui vont faire que les campagnes d achat chez soi vont accroitre les niveaux de bien etre et de production dans l economie locale