Social security reform with self-control preferences

Cagri S. Kumru*, Athanasios C. Thanopoulos

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    24 Citations (Scopus)

    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.

    Original languageEnglish
    Pages (from-to)886-899
    Number of pages14
    JournalJournal of Public Economics
    Volume95
    Issue number7-8
    DOIs
    Publication statusPublished - Aug 2011

    Fingerprint

    Dive into the research topics of 'Social security reform with self-control preferences'. Together they form a unique fingerprint.

    Cite this