Corsini, Lorenzo and Spataro, Luca (2011): Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities.
Download (425kB) | Preview
Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper we provide a model describing workers’ choices on the allocation of retirement savings in presence of a) mandatory contribution; b) portfolio decision; c) financial literacy costs. In particular, we characterise the results both from a positive and normative standpoint, by highlighting the determinants of the individual’s choice, with special focus on financial literacy costs and wage level inequalities and by characterizing the optimal contribution rate to mandatory complementary pension schemes.
|Item Type:||MPRA Paper|
|Original Title:||Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities|
|Keywords:||Financial literacy; Choice on pension Plans; Optimal portfolio composition; Income inequality.|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
|Depositing User:||Lorenzo Corsini|
|Date Deposited:||17. May 2011 23:10|
|Last Modified:||15. Feb 2013 22:41|
Benedict, M. and Shaw, K., 1995, The impact of pension benefits on the distribution of earned income, Industrial and Labor Relations Review, Vol. 48(4), po. 740-57.
Blake, D., 2001, Pension Economics, John Wiley & Sons. Creedy, J., 1994, Two-Tier State Pensions: Labour Supply and Income Distribution, The Manchester School of Economic & Social Studies, vol. 62(2), pp. 167-83.
Clark, R. L., McDermed, A., Sawant K. and D'Ambrosio, M.A., 2003, Financial education and retirement savings, Proceedings, Board of Governors of the Federal Reserve System (U.S.).
D’Amato, M. and Galasso, V., (2010), Political Intergenerational Risk Sharing, Journal of Public Economics, Vol. 94, pp. 628-37.
Demange, G., 2009, On sustainable Pay As You Go contribution rules, Journal of Public Economic Theory, Vol. 4 (8), pp. 493–527.
Fornero, E. and Monticone, C., 2011, Financial Literacy and Pension Plan Participation in Italy, CeRP Working Papers 111, Center for Research on Pensions and Welfare Policies, Turin (Italy).
Galasso, V., 2006, The Political Future of Social Security in Aging Societies, The MIT Press.
Gordon, R. and Varian, H., 1988, Intergenerational risk sharing. Journal of Public Economics, Vol. 37, pp. 185–202.
Iyengar, S.S., Jiang, W. and Huberman, G, (2004), How Much Choice is Too Much?: Contributions to 401(k) Retirement Plans, in Pension Design and Structure: New Lessons from Behavioral Finance, Ed. by Olivia S. Mitchell and Stephen P. Utkus. Oxford: Oxford University Press.
Jappelli, T. and Padula, M., 2011, Investment in Financial Literacy and Saving Decisions, CEPR Discussion Papers 8220, Centre for Economic Policy Research.
Lusardi, A. and Mitchel, O. S., 2009, How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness, NBER Working Papers 15350, National Bureau of Economic Research, Inc.
Lusardi and Mitchel 2011, Financial Literacy and Retirement Planning in the United States, CeRP Working Papers 107, Center for Research on Pensions and Welfare Policies, Turin (Italy).
Maurer, R., Mitchell, O. S. and Rogalla, R., 2010, The Effect of Uncertain Labor Income and Social Security on Life-cycle Portfolios, NBER Working Papers 15682, National Bureau of Economic Research, Inc.
Merton, R. C., 1969, Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case, The Review of Economics and Statistics, Vol. 51(3), pp. 247-57.
Nataraj, S. and Shoven, J.B, 2003, Comparing the Risks of Social Security with and without Individual Accounts, American Economic Review, Vol. 93(2), pp. 348-53.
OECD 2005, Improving Financial Literacy, OECD Publishing.
OECD 2008, Private Pension Outlook, OECD Publishing.
Phelps, E. S, 1962, The Accumulation of Risky Capital: A Sequential Utility Analysis, Econometrica, Vol. 30(4), pp. 729-43.
Samuelson, P.A., 1958, An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money, Journal of Political Economy, Vol. 66, pp 467-82.
Samuelson, P.A., 1969, Lifetime Portfolio Selection by Dynamic Stochastic Programming, The Review of Economics and Statistics, Vol. 51(3), pp. 239-46.
Samuelson, P.A., 1975, Optimum Social Security in a Life-Cycle Growth Model, International Economic Review, Department of Economics, Vol. 16(3), pp. 539-44.
Spataro and Corsini, 2011, Decisions on Retirement Savings Under Incomplete Financial Markets, Dipartimento di Scienze Economiche, Università di Pisa, Mimeo.
Varian, H. R., 1992, Microeconomic Analysis, New York : Norton.
Veall, M. R., 1986, Public pensions as optimal social contracts, Journal of Public Economics, vol. 31(2), pp. 237-51.