On Myopia as Rationale for Social Security

28 Pages Posted: 25 Sep 2008

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Joydeep Bhattacharya

Iowa State University - Department of Economics

Date Written: September 2008

Abstract

This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.

Keywords: myopia, pensions, social security, dynamic efficiency

JEL Classification: H55, E6

Suggested Citation

Andersen, Torben M. and Bhattacharya, Joydeep, On Myopia as Rationale for Social Security (September 2008). CESifo Working Paper Series No. 2401, Available at SSRN: https://ssrn.com/abstract=1273533

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

P.O. Box 7240
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Joydeep Bhattacharya

Iowa State University - Department of Economics ( email )

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Ames, IA 50011
United States
515-294-5886 (Phone)
515-294-0221 (Fax)

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