Designing benefit rules for flexible retirement: Welfare vs. redistribution

P. Eső; A. Simonovits; J. Tóth

doi:10.1556/aoecon.61.2011.1.2

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Acta Oeconomica

Volume/Issue:: Volume 61: Issue 1

Designing benefit rules for flexible retirement: Welfare vs. redistribution

Authors:

P. Eső

P. Eső
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A. Simonovits

A. Simonovits Institute of Economics of the Hungarian Academy of Sciences Budaörsi út 40 H-1112 Budapest Hungary

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J. Tóth

J. Tóth
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Pages:: 3–32

Online Publication Date:: 05 Apr 2011

Publication Date:: 01 Mar 2011

Article Category:: Journal Article

DOI:: https://doi.org/10.1556/aoecon.61.2011.1.2

Keywords:: flexible retirement; asymmetric information; actuarial fairness; redistribution; mechanism design; C61; C63; D82; D91; H55

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With flexible (variable) retirement every individual determines his optimal retirement age, depending on a common benefit-retirement age schedule and his life expectancy. The government maximises the average expected lifetime utility minus a scalar multiple of the variance of the lifetime pension balances to achieve harmony between the maximisation of welfare and the minimisation of redistribution. Since the government cannot identify types by life expectancy, it must take the individual incentive compatibility constraints into account. Second-best schedules strongly reduce the variances of benefits and of retirement ages of the so-called actuarially fair system, thus achieving higher social welfare and lower redistribution.

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Acta Oeconomica Periodical of the Hungarian Academy of Sciences

Print ISSN:: 0001-6373

Online ISSN:: 1588-2659

Associate Editors

Péter Benczúr, Joint Joint Research Center, European Commission
Dóra Benedek, International Monetary Fund
Balázs Égert, OECD
Dániel Prinz, World Bank
Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

Editorial Board

Anders Åslund, Georgetown University and Advisory Council of CASE, USA
István Benczes, Corvinus University of Budapest, Hungary
Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
Fabrizio Coricelli, University of Siena, Italy
László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
Martin Kahanec, Central European University, Austria
Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
Péter Mihályi, Corvinus University of Budapest, Hungary
Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: vanyai.judit@krtk.hu

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Acta Oeconomica
Language	English
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