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The Influence of Decision Costs on Investments in Indivudual Savings Accounts

Author

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  • Justin van de Ven

    (National Institute of Economic and Social Research, London; Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This study considers the efficacy of a tax incentivised savings scheme in context of decision making rigidities. Analysis is based on a classical life-cycle model of savings and investment decisions, augmented with a salience cost over participation in Individual Savings Accounts (ISAs) currently run in the UK. Calibration results indicate that salience costs help to match the model to observed rates of participation in ISAs. The calibrated model suggests that the price effects of ISAs are insufficient to generate appreciable increases in private sector savings, with or without salience costs. In this context, salience costs have an important influence on the distribution of welfare benefits that are delivered by the ISAs scheme.

Suggested Citation

  • Justin van de Ven, 2013. "The Influence of Decision Costs on Investments in Indivudual Savings Accounts," Melbourne Institute Working Paper Series wp2013n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2013n19
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2013n19.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Decision costs; saving; uncertainty; pensions;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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