New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Social Security Reform with Self-Control Preferences" 

UNSW Australian School of Business Research Paper No. 2010 ECON 11

CAGRI S. KUMRU, Australian School of Business at UNSW
Email: cs.kumru@unsw.edu.au
ATHANASIOS C. THANOPOULOS, University of Pittsburgh - Department of Economics
Email: att8@pitt.edu

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.

"Eliciting Individual Preferences for Pension Reform" 

IZA Discussion Paper No. 4479

YOSR ABID FOURATI, National University of Ireland (NUI) - Department of Economics
Email: y.abid1@nuigalway.ie
CATHAL O'DONOGHUE, National University of Ireland, Galway, Rural Economic Research Centre, Teagasc, Institute for the Study of Labor (IZA)
Email: cathal.odonoghue@nuigalway.ie

Pension systems have recently been under scrutiny because of the expected population ageing threatening its sustainability. This paper's contribution to the debate is from a political economic perspective as it uses data from a choice experiment to investigate individual preferences for an alternative state pension scheme based around preferences for cost, poverty, retirement age and pension parameters. Answers are used to estimate a lifecycle utility model of preferences towards pensions' parameters. Results suggest that individuals value orientation is an important determinant of their preferences. Respondents' income determines which degree of redistribution is preferred. However, preferences according to age are in contradiction with what is suggested in theory.

"Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe" 

IZA Discussion Paper No. 4726

ALEXANDER M. DANZER, University of London - Royal Holloway College, Institute for the Study of Labor (IZA)
Email: a.m.danzer@rhul.ac.uk

The retirement decision is under researched in developing and emerging countries, despite the topic's close relation to many development issues such as poverty reduction and social security, and despite the fact that population ageing will increasingly challenge the developing world. This paper uses a natural experiment from Ukraine to estimate the causal effect of a threefold increase in the legal minimum pension on labor supply and retirement behaviour at older ages. Applying difference-in-difference and regression discontinuity methods on two independent nationally representative data sets, the paper estimates a pure income effect that caused additional retirement of 30 to 47 percent. Additional evidence suggests that retirement incentives are stronger at the lower tail of the educational distribution and that the strict Labor Code curbed responses at the intensive labor supply margin. Although the substantial pension increase provided strong disincentives to work and put a heavy fiscal burden on Ukraine, it significantly reduced the propensity of falling into poverty for those in retirement.

"The Changing Role of Political Parties in the Reform of Continental Pension Regimes - Changing Electoral Constituencies as Drivers of Reform" 

APSA 2009 Toronto Meeting Paper

SILJA HÄUSERMANN, University of Zurich - Institute for Political Science
Email: silja.haeusermann@ipz.uzh.ch

Over the last decade, the main puzzle in the analysis of continental European welfare states has shifted from the explanation of stability to the explanation of change. Rather than being "frozen landscapes", most continental welfare states have indeed undergone far-reaching retrenchment and restructuring, even in the field of pensions, which supposedly is the most "path dependent" welfare policy. Moreover, even left-wing political parties and even trade unions have played a major role in cutting back existing pension rights in several countries. How can we explain the contents and coalitional dynamics of these reforms?

This contribution argues that we need to link the analysis of policy-making by political parties and unions with an analysis of the changing socio-structural constituencies these actors represent. When looking empirically at the profile and preferences of the electorate and membership of parties and trade unions, it can be shown that the recent reforms cater to new constituencies, rather than the blue-collar workers, who were the core beneficiaries of the industrial welfare state. However, since the left-wing electorate has become very heterogeneous, the left is increasingly divided. Empirically, socio-structural transformations and the preference profiles of constituencies in Switzerland, Germany and France are analyzed by means of survey data. In a second step, an analysis of collective actor positions in the reform space shows how these micro-level transformations affect the coalitional dynamics in three major pension reform processes in the early 2000s. Methodologically, I use factor analysis to analyze the dimensionality of the policy space, and the configuration of actors in this space.