Essays on Social Insurance

In the first essay, we analyze the welfare effects of an unfunded social security system. We do so using an overlapping generations economy wherein agents have self-control preferences, face mortality risk, individual income risk, and borrowing constraints. Given our specification of preferences, unfunded social security helps reduce the agents' temptation to consume in every period; consequently, the welfare costs it otherwise entails are substantially mitigated. While both social security and self-control when considered separately reduce welfare, their combination renders this effect considerably less severe. Moreover, if the cost of resisting temptation is very high, the introduction of social security might even improve welfare.In the second essay I use a dynamic stochastic general equilibrium overlapping generations model to examine the relevance of unfunded social security in an environment where both CRRA and self-control agents co-exist. I identify conditions under which the existence of CRRA agents in the economy makes self-control agents better-off. I, therefore, conclude that temptation prevalence across individuals in the economy and temptation intensity within individuals can be considered to be substitutes in reducing the welfare cost associated with unfunded social security for self control agents.In the third essay we analyze a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature in indicating that the complete elimination of social security is the reform scenario that maximizes welfare. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the "social security elimination" scenario loses ground very rapidly. In fact, in the case of very severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

Social Security Reform with Self-Control Preferences

This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the "social security elimination" scenario loses ground very rapidly. In fact, in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals.funded social security; unfunded social security; self-control preferences

Social Security Reform and Temptation

This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature indicating that the complete elimination of social security is the reform scenario that maximizes welfare improvement. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the "social security elimination" scenario loses ground very rapidly. In fact, in the case of very severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals.funded social security, unfunded social security, self-control preferences

Self-control Preferences and Taxation: A Quantitative Analysis in a Life Cycle Model

This paper examines the impact of various .fiscal policies, namely, taxes on consumption, lab and capital when agents have self-control preferences. Agents trade in a stochastic overlapping generations economy while facing borrowing constraints. We quantitatively show that modelling choices, such as, liquidity constraints, life-cycle structure and idiosyncratic earnings risks, that were previously considered to be critical in delivering a positive capital income tax, need not be binding in this regard. We argue and quantitatively show that for a sufficiently large measure of individuals having self-control preferences instead of CRRA preferences, or alternatively, for a sufficiently high cost of exercising self control when all individuals are self-control types, the optimal capital income tax is zero. Given there is strong empirical and experimental evidence regarding the existence of self-control problems, our model provides quite an interesting insight: as agents.self-control costs rise, the optimal capital income tax rate will converge to Chamley and Judd value.

Social security reform and temptation

This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature indicating that the complete elimination of social security is the reform scenario that maximizes welfare improvement. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly. In fact, in the case of very severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

Self-control Preferences and Taxation: A Quantitative Analysis in a Life Cycle Model Self-control Preferences and Taxation: A Quantitative Analysis in a Life Cycle Model

Abstract This paper examines the impact of various …scal policies, namely, taxes on consumption, labor and capital when agents have self-control preferences. Agents trade in a stochastic overlapping generations economy while facing borrowing constraints. We quantitatively show that modelling choices, such as, liquidity constraints, life-cycle structure and idiosyncratic earnings risks, that were previously considered to be critical in delivering a positive capital income tax, need not be binding in this regard. We argue and quantitatively show that for a su¢ ciently large measure of individuals having self-control preferences instead of CRRA preferences, or alternatively, for a su¢ ciently high cost of exercising self control when all individuals are self-control types, the optimal capital income tax is zero. Given there is strong empirical and experimental evidence regarding the existence of self-control problems, our model provides quite an interesting insight: as agents'self-control costs rise, the optimal capital income tax rate will converge to Chamley and Judd value

WP 2016-340

This study analyzes the relative performance in terms of welfare of the current U.S. PAYG system compared to an array of cost equivalent alternative specifications of means-tested pension programs. We conduct our analysis under two different settings. While in the first setting, individuals have standard preferences, in the second setting individuals have self-control preferences. We show that the implications of the reform substantially differs across the two settings.Social Security Administrationhttp://deepblue.lib.umich.edu/bitstream/2027.42/121939/1/wp340.pdfDescription of wp340.pdf : Working pape

Social security and self control preferences

We analyze the welfare effects of an unfunded social security system. We do so using an overlapping generations economy wherein agents have self-control preferences, face mortality risk, individual income risk, and borrowing constraints. Given our specification of preferences, unfunded social security helps reduce the agents' temptation to consume in every period; consequently, the welfare costs it otherwise entails are substantially mitigated. While both social security and self-control when considered separately reduce welfare, their combination renders this effect considerably less severe. Moreover, if the cost of resisting temptation is very high, the introduction of social security might even improve welfare.

Social security reform with self-control preferences

This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the "social security elimination" scenario loses ground very rapidly. In fact, in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals.Funded social security Unfunded social security Self-control preferences