New papers from the Social Science Research Network

"Do Americans Really Save Too Little and Should We Nudge Them to Save More? The Ethics of Nudging Retirement Savings"
George Mason Law & Economics Research Paper No. 17-03

TODD J. ZYWICKI, George Mason University - Antonin Scalia Law School, Faculty, PERC - Property and Environment Research Center
Email: tzywick2@gmu.edu

The contention that consumers systematically “undersave” for retirement is a frequent example provided by adherents to behavioral economics and behavioral law and economics to purportedly illustrate their theories. Although frequently asserted, the claim that people systematically undersave is rarely assessed empirically.

This article, written for the Georgetown Institute for the Study of Markets and Ethics Symposium on “The Ethics of Nudging,” examines available data on how many people fail to save and the reasons why they do not. According to available evidence, the overwhelming number of households saves enough or more than they need for retirement; only a small minority does not seem to save enough. Those who do not save for retirement lack the money to do so or allocate available resources to paying down consumer and student loan debt. Behavioral economics theories explain little of the observed patterns of saving or non-saving behavior. Moreover, behavioral economics itself suggests that many people probably oversave for retirement and makes no effort to reconcile these offsetting biases.

More fundamental, once it is recognized that there is an opportunity cost to saving more — one must consume less today, borrow more, or work more — the theoretical validity of the claim that people undersave because of behavioral biases is suspect. Given the inherently subjective nature of opportunity cost, a central planner cannot be confident that he can make people better off by influencing their consumption expenditures across time than he could by shifting consumption expenditures across different goods and services today. It is concluded that there is little reason to believe that people would be made better off by nudging them to save more for retirement.

"Considering Part-Time Work after Retirement: Should I Stay or Should I Go?"

HONG MAO, Shanghai Second Polytechnic University
Email: hmaoi@126.com
JAMES M. CARSON, University of Georgia
Email: jcarson@uga.edu
KRZYSZTOF OSTASZEWSKI, Illinois State University
Email: krzysio@ilstu.edu
ZHONGKAI WEN, University of Illinois at Chicago
Email: zwen5@uic.edu

In this article, we use dynamic leisure preference to study the optimal retirement decision with consideration of part-time work after the “official” retirement. We also consider a risky investment besides risk-free investment. and allow investor borrowing money at risk-free interest rate. Our results indicate that the optimal retirement age is very sensitive to the following parameters: coefficient of risk aversion, the leisure, rate after retirement, coefficient of survival function (describing the individual’s mortality), interest rate and discount rate, and is especially sensitive to the drift of return rate of risky assets invested. Our results also show that mortality improvement greatly affect all other optimal solutions except optimal retirement age, but have small affect on optimal retirement age.

"Intergenerational Transfers and China's Social Security Reform"
The Journal of the Economics of Ageing, Forthcoming

AYSE IMROHOROGLU, University of Southern California - Marshall School of Business
Email: AIMROHOROGLU@MARSHALL.USC.EDU
KAI ZHAO, University of Connecticut - Department of Economics
Email: kai.zhao@uconn.edu

Most of the studies examining the implications of social security reforms in China use overlapping generations models and abstract from the role of family support. However, in China, family support plays a prominent role in the well-being of the elderly and often substitutes for the lack of government-provided old-age support systems. In this paper, we investigate the impact of social security reform in China in a model with two-sided altruism as well as a pure life-cycle model. We show that the quantitative implications of social security reform, in particular for capital accumulation and output, are very different across the two models.