Optimal Retirement Policies with Present-Biased Agents
Journal of the European Economic Association, Volume 19, Issue 4, August 2021, Pages 2085–2130
67 Pages Posted: 1 May 2018 Last revised: 11 Nov 2022
Date Written: September 19, 2018
Abstract
This paper incorporates quasi-hyperbolic discounting into a Mirrlees taxation model to study the design of retirement policies for present-biased agents. I show that the government can improve the screening of productivity by exploiting time inconsistency. This is done by providing commitment to sophisticated agents and taking advantage of the incorrect beliefs of naive agents. This can be achieved even if the degrees of present bias and sophistication are private information. I also demonstrate how the government can implement the optimal mechanism using retirement savings accounts and social security benefits.
Keywords: Retirement Policy, Time Inconsistency, Optimal Taxation
JEL Classification: E62, E71, H21, H55
Suggested Citation: Suggested Citation