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An Equilibrium Theory of Retirement Plan Design

Author

Listed:
  • Ryan Bubb
  • Patrick L. Warren

Abstract

We develop an equilibrium theory of employer-sponsored retirement plan design using a behavioral contract theory approach. The operation of the labor market results in retirement plans that generally cater to, rather than correct, workers' mistakes. Our theory provides new explanations for a range of facts about retirement plan design, including the use of employer matching contributions and the use of default contribution rates in automatic enrollment plans that lower many workers' savings. We provide novel evidence for our theory from a sample of plans.

Suggested Citation

  • Ryan Bubb & Patrick L. Warren, 2020. "An Equilibrium Theory of Retirement Plan Design," American Economic Journal: Economic Policy, American Economic Association, vol. 12(2), pages 22-45, May.
    • Handle: RePEc:aea:aejpol:v:12:y:2020:i:2:p:22-45
    DOI: 10.1257/pol.20180605
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    Citations

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    Cited by:

    1. Lucas Goodman & Anita Mukherjee & Shanthi Ramnath, 2022. "Set it and Forget it? Financing Retirement in an Age of Defaults," Working Paper Series WP 2022-50, Federal Reserve Bank of Chicago.
    2. Louis Kaplow, 2022. "Optimal Income Taxation," NBER Working Papers 30199, National Bureau of Economic Research, Inc.
    3. Goodman, Lucas & Mukherjee, Anita & Ramnath, Shanthi, 2023. "Set it and forget it? Financing retirement in an age of defaults," Journal of Financial Economics, Elsevier, vol. 148(1), pages 47-68.

    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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