Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 957: Uncertain Length of Life, Retirement Age, and Optimal Pension Design

Thomas Aronsson () and Sören Blomquist ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Sören Blomquist: Department of Economics, Uppsala University, Postal: Department of Economics, Uppsala University, E 751 20 Uppsala, Sweden

Abstract: In this paper, we consider how the hours of work and retirement age ought to respond to a change in the uncertainty of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and a decrease in the hours of work per period spent working. This result is robust, and is also derived in models of decentralized decision-making where individuals decide on their own consumption, labor supply, and retirement age, and where the government attempts to affect their behavior and welfare through redistribution and pension policy.

Keywords: uncertain lifetime; retirement; work hours pension policy

JEL-codes: D61; D80; H21; H55

18 pages, March 2, 2018

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