IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v45y2007i3p602-614.html
   My bibliography  Save this article

An Experimental Test On Retirement Decisions

Author

Listed:
  • ENRIQUE FATAS
  • JUAN A. LACOMBA
  • FRANCISCO LAGOS

Abstract

As part of the current debate on the reform of pension systems, this paper presents an original experimental test where subjects face three different payoff sequences with identical expected value. Two central questions are analyzed. First, whether the distribution of retirement benefits across time influences the retirement decision. And second, whether actuarially fair pension systems distort the retirement decision. The results indicate both that a lump‐sum payment rather than annuity benefits is far more effective in delaying the retirement decision and that recent reforms that encourage the link between lifetime contributions and pension benefits to delay the retirement decision should take into account timing considerations. (JEL C91, H55, J26)

Suggested Citation

  • Enrique Fatas & Juan A. Lacomba & Francisco Lagos, 2007. "An Experimental Test On Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 602-614, July.
    • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:602-614
    DOI: 10.1111/j.1465-7295.2007.00027.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-7295.2007.00027.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1465-7295.2007.00027.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Cremer, Helmuth & Pestieau, Pierre, 2000. "Reforming our pension system: Is it a demographic, financial or political problem?," European Economic Review, Elsevier, vol. 44(4-6), pages 974-983, May.
    2. Conde-Ruiz, J. Ignacio & Galasso, Vincenzo, 2004. "The macroeconomics of early retirement," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1849-1869, August.
    3. Cremer, Helmuth & Pestieau, Pierre, 2003. "The Double Dividend of Postponing Retirement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 419-434, August.
    4. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2005. "Voting on Pensions with Endogenous Retirement Age," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(1), pages 7-28, January.
    5. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(4), pages 737-755.
    6. Hans Fehr & Wenche Irén Sterkeby & Øystein Thøgersen, 2003. "Social security reforms and early retirement," Journal of Population Economics, Springer;European Society for Population Economics, vol. 16(2), pages 345-361, May.
    7. Cubitt, Robin P & Sugden, Robert, 2001. "Dynamic Decision-Making under Uncertainty: An Experimental Investigation of Choices between Accumulator Gambles," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 103-128, March.
    8. Juan Lacomba & Francisco Lagos, 2006. "Population aging and legal retirement age," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 507-519, July.
    9. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    10. Glenn W. Harrison & Morten I. Lau & Melonie B. Williams, 2002. "Estimating Individual Discount Rates in Denmark: A Field Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1606-1617, December.
    11. Hamermesh, Daniel S & Menchik, Paul L, 1987. "Planned and Unplanned Bequests," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 55-66, January.
    12. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, "undated". "The Evolution of Retirement," Working Papers 2005-03, FEDEA.
    13. Sheshinski, Eytan, 1978. "A model of social security and retirement decisions," Journal of Public Economics, Elsevier, vol. 10(3), pages 337-360, December.
    14. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    15. Laurence J. Kotlikoff, 1979. "Social Security and Equilibrium Capital Intensity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(2), pages 233-253.
    16. Enrica Carbone & John D. Hey, 2004. "The effect of unemployment on consumption: an experimental analysis," Economic Journal, Royal Economic Society, vol. 114(497), pages 660-683, July.
    17. Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(3), pages 505-529.
    18. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 396-410, June.
    19. Doody, M.M. & Chimes, K., 2000. "The Social Security Administration 'presumed living' search," American Journal of Public Health, American Public Health Association, vol. 90(12), pages 1948-1949.
    20. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    21. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
    22. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    23. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
    24. Breyer, Friedrich & Kifmann, Mathias, 2002. "Incentives to retire later – a solution to the social security crisis?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(2), pages 111-130, July.
    25. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giesecke, Matthias & Yang, Guanzhong, 2018. "Are financial retirement incentives more effective if pension knowledge is high?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 17(3), pages 278-315, July.
    2. Robert Gazzale & Julian Jamison & Alexander Karlan & Dean Karlan, 2013. "Ambiguous Solicitation: Ambiguous Prescription," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 1002-1011, January.
    3. Jante Parlevliet, 2017. "What drives public acceptance of reforms? Longitudinal evidence from a Dutch pension reform," Public Choice, Springer, vol. 173(1), pages 1-23, October.
    4. d’Albis, Hippolyte & Attanasi, Giuseppe & Thibault, Emmanuel, 2020. "An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 694-717.
    5. Ramón Cobo-Reyes & Julian Diaz-Saavedra, 2008. "La Percepción de los Trabajadores en España de la Normativa del Sistema Público de Pensiones," ThE Papers 08/15, Department of Economic Theory and Economic History of the University of Granada..
    6. Giesecke, Matthias Nicolas & Yang, Guanzhong, 2016. "The Effect of Financial Incentives on Retirement Decision Making under Different Schemes of Information Provision: Experimental Evidence," VfS Annual Conference 2016 (Augsburg): Demographic Change 145548, Verein für Socialpolitik / German Economic Association.
    7. Robert S. Gazzale & Lina Walker, 2009. "Behavioral Biases in Annuity Choice: An Experiment," Department of Economics Working Papers 2009-01, Department of Economics, Williams College.
    8. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers 08/14, Department of Economic Theory and Economic History of the University of Granada..
    9. Enrique Fatás & Juan Lacomba & Francisco Lagos & Ana Moro-Egido, 2013. "An experimental test on dynamic consumption and lump-sum pensions," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(4), pages 393-413, November.
    10. Bachmann, Kremena & Lot, Andre & Xu, Xiaogeng & Hens, Thorsten, 2023. "Experimental Research on Retirement Decision-Making: Evidence from Replications," Journal of Banking & Finance, Elsevier, vol. 152(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers 08/14, Department of Economic Theory and Economic History of the University of Granada..
    2. Galasso, Vincenzo, 2008. "Postponing retirement: the political effect of aging," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2157-2169, October.
    3. Juan Lacomba & Francisco Lagos, 2006. "Population aging and legal retirement age," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 507-519, July.
    4. Ryo Arawatari & Tetsuo Ono, 2010. "Retirement and Social Security: A Political Economy Perspective," Discussion Papers in Economics and Business 10-04-Rev, Osaka University, Graduate School of Economics.
    5. Juan Lacomba & Francisco Lagos, 2010. "Postponing the legal retirement age," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(3), pages 357-369, July.
    6. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, "undated". "The Evolution of Retirement," Working Papers 2005-03, FEDEA.
    7. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, 2005. "Early Retirement and Social Security: A Long Term Perspective," CESifo Working Paper Series 1571, CESifo.
    8. Ryo Arawatari & Tetsuo Ono, 2011. "Retirement and social security: the roles of self-fulfilling expectations and educational investments," Economics of Governance, Springer, vol. 12(4), pages 353-383, December.
    9. Juan A. Lacomba & Francisco M. Lagos, 2009. "Reforming the retirement scheme: Flexible retirement vs. Legal retirement age," ThE Papers 09/01, Department of Economic Theory and Economic History of the University of Granada..
    10. Casamatta, G. & Batté, L., 2016. "The Political Economy of Population Aging," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 381-444, Elsevier.
    11. Juan Lacomba & Francisco Lagos, 2009. "Defined contribution plan vs. defined benefits plan: reforming the legal retirement age," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 12(1), pages 1-11.
    12. Jindrich Matousek & Tomas Havranek & Zuzana Irsova, 2022. "Individual discount rates: a meta-analysis of experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 318-358, February.
    13. James Andreoni & Charles Sprenger, 2012. "Estimating Time Preferences from Convex Budgets," American Economic Review, American Economic Association, vol. 102(7), pages 3333-3356, December.
    14. Benjamin Bittschi & Berthold U. Wigger, 2019. "On the Political Feasibility of Increasing the Legal Retirement Age," CESifo Working Paper Series 7492, CESifo.
    15. Stephan Meier & Charles Sprenger, 2007. "Impatience and credit behavior: evidence from a field experiment," Working Papers 07-3, Federal Reserve Bank of Boston.
    16. Rose, Julia & Rose, Michael, 2019. "Ready-made oTree apps for time preference elicitation methods," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 23-28.
    17. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
    18. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten I. & Rutström, E. Elisabet, 2014. "Discounting behavior: A reconsideration," European Economic Review, Elsevier, vol. 71(C), pages 15-33.
    19. BONAN Jacopo & LEMAY-BOUCHER Philippe & SCOTT Douglas & TENIKUE Michel, 2017. "Can Hypothetical Time Discounting Rates Predict Actual Behaviour: Evidence from a Randomized Experiment," LISER Working Paper Series 2017-03, Luxembourg Institute of Socio-Economic Research (LISER).
    20. Marc Fleurbaey & Marie‐Louise Leroux & Pierre Pestieau & Gregory Ponthiere, 2016. "Fair Retirement Under Risky Lifetime," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(1), pages 177-210, February.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:602-614. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.