September 2008
This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.
Also published in: forthcoming: Economic Theory
Keywords: myopia, pensions, social security, dynamic efficiency
JEL Classification: [E600] Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook : General [H550] Social Security and Public Pensions
[Download PDF, 240KB]
Torben M. Andersen tandersen@econ.au.dk Joydeep Bhattacharya joydeep@iastate.edu
