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Optimum Delayed Retirement Credit

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  • Eytan Sheshinski

Abstract

A central question for pension design is how benefits should vary with the age of retirement beyond early eligibility age. It is often argued that in order to be neutral with respect to individual retirement decisions benefits should be actuarially fair, that is, the present value of additional contributions and benefits (’Delayed Retirement Credit’ - DRC) due to postponed retirement should be equal. We show that in a self-selection, asymmetric information model, because individual decisions are suboptimal, the socially optimal benefit structure should be less than actuarially fair.

Suggested Citation

  • Eytan Sheshinski, 2002. "Optimum Delayed Retirement Credit," Discussion Paper Series dp329, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    • Handle: RePEc:huj:dispap:dp329
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    References listed on IDEAS

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    1. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
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    Citations

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    Cited by:

    1. Breyer Friedrich & Hupfeld Stefan, 2010. "On the Fairness of Early-Retirement Provisions," German Economic Review, De Gruyter, vol. 11(1), pages 60-77, February.
    2. Dirk-jan Omtzigt, 2006. "Aging and the interaction between education, retirement and the working life," Economics Series Working Papers 274, University of Oxford, Department of Economics.
    3. András Simonovits, 2006. "Optimal Design of Pension Rule with Flexible Retirement: The Two-Type Case," Journal of Economics, Springer, vol. 89(3), pages 197-222, December.
    4. Jean-Baptiste Michau, 2011. "Optimal Redistribution with Intensive and Extensive Labor Supply Margins: A Life-Cycle Perspective," Working Papers hal-00639121, HAL.
    5. repec:bla:germec:v:11:y:2010:i::p:60-77 is not listed on IDEAS
    6. Heidler, Matthias & Raffelhüschen, Bernd & Leifels, Arne, 2006. "Heterogenous life expectancy, adverse selection, and retirement behaviour," FZG Discussion Papers 13, University of Freiburg, Research Center for Generational Contracts (FZG).
    7. Martin Werding, 2007. "Versicherungsmathematisch korrekte Rentenabschläge für die gesetzliche Rentenversicherung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(16), pages 19-32, August.
    8. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series 1370, CESifo.

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    More about this item

    Keywords

    delayed retirement credit; self-selection; moral hazard;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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

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