Rational Pension Products for Irrational People

Posted: 5 Jan 2009

Date Written: December 30, 2008

Abstract

The aim of this paper is to explore a new type of pension plan tailored to the needs and preferences of individuals living in Europe. The personal pension accounts that we propose are semi-tailored contracts that are rational when judged from the perspective of normative economic theory. Such contracts can be designed and marketed through an employer, a trade union, or other trusted institution so as to minimize agency costs and take advantage of scale economies. Moreover, they can be offered as optimal defaults to groups of plan members with similar characteristics. There is much that governments can do at very low cost to facilitate the efficient production of these contracts.

Keywords: pensions, behavioral economics, guarantees

Suggested Citation

Bodie, Zvi and Prast, Henriette M., Rational Pension Products for Irrational People (December 30, 2008). Available at SSRN: https://ssrn.com/abstract=1321884

Zvi Bodie

Boston University ( email )

12 Salisbury Road
Brookline, MA
United States
617 306 5556 (Phone)

HOME PAGE: http://www.zvibodie.com

Henriette M. Prast (Contact Author)

Tiburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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