nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒03‒08
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Financial Sophistication in the Older Population By Annamaria Lusardi; Olivia S. Mitchell; Vilsa Curto
  2. Retirement intentions of older migrant workers: Does health matter? By Nicolas Gérard Vaillant; François-Charles Wolff
  3. The effect of social security, health, demography and technology on retirement By Ferreira, Pedro Cavalcanti; Santos, Marcelo Rodrigues dos
  4. Age differences in the reaction to incentives – do older people avoid competition? By Sproten, Alec N.; Schwieren, Christiane
  5. Love, Toil, and Health Insurance: Why American Husbands Retire When They Do By Joshua Congdon-Hohman
  6. Unraveling Short- and Farsightedness in Politics By Hans Gersbach; Oriana Ponta
  7. The Decision to Delay Social Security Benefits: Theory and Evidence By John B. Shoven; Sita Nataraj Slavov
  8. The Multipillar System for Health Care Financing: Thirteen Good Reasons for Open Capitalisation Funds, Covering both Pension and Health Care Provisions By Pammolli, Fabio; Salerno, Nicola
  9. Valuing Health Risk Changes Using a Life-Cycle Consumption Framework By Stephen C. Newbold

  1. By: Annamaria Lusardi; Olivia S. Mitchell; Vilsa Curto
    Abstract: This paper examines data on financial sophistication among the U.S. older population, using a special-purpose module implemented in the Health and Retirement Study. We show that financial sophistication is deficient for older respondents (aged 55+). Specifically, many in this group lack a basic grasp of asset pricing, risk diversification, portfolio choice, and investment fees. Subpopulations with particular deficits include women, the least educated, persons over the age of 75, and non-Whites. In view of the fact that people are increasingly being asked to take on responsibility for their own retirement security, such lack of knowledge can have serious implications.
    JEL: D91 G11 J14 J18
    Date: 2012–02
  2. By: Nicolas Gérard Vaillant (LEM - Lille - Economie et Management - CNRS : UMR8179 - Université des Sciences et Technologies de Lille - Lille I - Fédération Universitaire et Polytechnique de Lille, Université Catholique de Lille - Université Catholique de Lille, ISTC - Institut des Stratégies et Techniques de Communication - Université Catholique de Lille); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272, INED - Institut National d'Etudes Démographiques Paris - INED)
    Abstract: This paper investigates the effect of self-assessed health on retirement plans of older migrants. As immigration is primarily associated with labor considerations, the role of economic incentives in the migration decision suggests that health could play a minor effect in immigrants' decision to retire. Using detailed data on immigrants living in France collected in 2003, we examine the role of health on early retirement intentions using simultaneous, recursive models that account for the fact that subjective health is potentially endogenous. Being in poor health increases the intention of migrant workers to retire early, but the subjective health outcomes have little influence on retirement plans.
    Keywords: Retirement intention ; self-assessed health ; immigrants ; France
    Date: 2012–02–17
  3. By: Ferreira, Pedro Cavalcanti; Santos, Marcelo Rodrigues dos
    Abstract: This article studies the determinants of the labor force participation of the elderlyand investigates the factors that may account for the increase in retirement in thesecond half of the last century. We develop a life-cycle general equilibrium modelwith endogenous retirement that embeds Social Security legislation and Medicare. In-dividuals are ex ante heterogeneous with respect to their preferences for leisure andface uncertainty about labor productivity, health status and out-of-pocket medical ex-penses. The model is calibrated to the U.S. economy in 2000 and is able to reproducevery closely the retirement behavior of the American population. It reproduces thepeaks in the distribution of Social Security applications at ages 62 and 65 and the ob-served facts that low earners and unhealthy individuals retire earlier. It also matchesvery closely the increase in retirement from 1950 to 2000. Changes in Social Securitypolicy - which became much more generous - and the introduction of Medicare accountfor most of the expansion of retirement. In contrast, the isolated impact of the increasein longevity was a delaying of retirement.
    Date: 2012–02–24
  4. By: Sproten, Alec N.; Schwieren, Christiane
    Abstract: The “aging employee” has recently become a hot topic in many fields of behavioural research. With the aim to determine the effects of different incentive schemes (competition, social or increased monetary incentives) on performance of young and older subjects, we look at behaviour of a group of younger and older adults on a well-established real effort task. We show that older adults differ from younger adults in their performance in all conditions, but not in the improvement between conditions. The age difference in performance is however driven by women. While we replicate the gender difference in competitiveness found in the literature, we do not find a significant age difference in competitiveness. Social incentives have an at least as strong or even stronger effect on performance than increased monetary incentives. This effect is driven by men; women do not show an increase in performance with social incentives.
    Keywords: aging; competition; social production functions; experiment; incentives
    JEL: C72 C91 J10 J33
    Date: 2012–02–17
  5. By: Joshua Congdon-Hohman (Department of Economics, College of the Holy Cross)
    Abstract: Health insurance has previously been shown to be an important determinant of retirement timing among older Americans. While previous literature has largely ignored the inter-spousal dependence of health insurance benefits, this study examines the relationship of both spouses’ health insurance options to the household’s timing of the husband’s retirement. Using data from the Health and Retirement Study, I find that a wife’s health insurance options have an independent impact on the timing of her husband’s exit from the labor force. This impact is not distinguishable in magnitude to that of a husband’s own health insurance options. Differences for each spouse do arise when each spouse’s health is interacted with his or her health insurance options following a husband’s retirement. The impact of a wife’s health insurance needs on the timing of a husband’s retirement is dependent on her health while the impact of the husband’s insurance options is seemingly unrelated to his health. The omission of inter-spousal health insurance dependency may lead to an underestimation of the cost and the employment response to changes in the health insurance system from newly legislated health care reform.
    Keywords: Retirement, health insurance, household decision-making
    JEL: H55 J26 J32 J44
    Date: 2011–11
  6. By: Hans Gersbach (ETH Zurich, Switzerland); Oriana Ponta (ETH Zurich, Switzerland)
    Abstract: The absence of the deselection threat in incumbents’ last term in office can be negative or positive for society. Some politicians may reduce their efforts, while others may pursue beneficial long-term policies that may be unpopular in the short term. We propose a novel pension system that solves the effort problem while preserving willingness to implement long-term policies. The idea is to give politicians the option to choose between a flexible pension scheme and a fixed pension scheme. In a flexible pension scheme, the pension increases with short term performance as measured by the vote share of the officeholder’s party in the next election. This system increases social welfare by letting officeholders self-select into those activities that most benefit society. We analyze the properties and consequences of such a system and assess its robustness. Finally, we extend the pension system with choice to non-last-term situations and derive a general welfare result.
    Keywords: elections, political contracts, vote-share thresholds, incumbents, selection, effort
    JEL: D7
    Date: 2012–02
  7. By: John B. Shoven; Sita Nataraj Slavov
    Abstract: Social Security benefits may be commenced at any time between age 62 and age 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit amount to reflect the age at which benefits are claimed. We investigate the actuarial fairness of this adjustment. Our simulations suggest that delaying is actuarially advantageous for a large subset of people, particularly for real interest rates of 3.5 percent or below. The gains from delaying are greater at lower interest rates, for married couples relative to singles, for single women relative to single men, and for two-earner couples relative to one-earner couples. In a two-earner couple, the gains from deferring the primary earner’s benefit are greater than the gains from deferring the secondary earner’s benefit. We then use panel data from the Health and Retirement Study to investigate whether individuals’ actual claiming behavior appears to be influenced by the degree of actuarial advantage to delaying. We find no evidence of a consistent relationship between claiming behavior and factors that influence the actuarial advantage of delay, including gender and marital status, interest rates, subjective discount rates, or subjective assessments of life expectancy.
    JEL: D14 H55
    Date: 2012–02
  8. By: Pammolli, Fabio; Salerno, Nicola
    Abstract: CeRM recommendation for creating a new tool, the Open Welfare Funds: open funds based on real capitalisation of contributions, dedicated to both pension and health care provisions, and linked to collective insurance coverage against major health risks (first of all lack of self-sufficiency) Within welfare systems, health care is the expenditure that poses the most urgent problems for long term sustainability. Without policy interventions and structural reforms, its physiological tendency towards increases over Gdp will inevitably require access restrictions and cutting off of demand for services. This paper highlights the need to renew the current health care financing scheme. In the presence of ageing populations and rising incidences of health care expenditures over Gdp, this scheme cannot remain fully in charge of the working income of active people (pay-as-you-go), if we want to avoid depressive effects on employment, investments and productivity. Such effects, besides hampering economic growth, would have a negative impact on health care itself, with resources becoming more and more scarce with respect to needs. The financing scheme must become multipillar, with pay-as-you-go complemented by a private channel based on the real capitalisation of contributions. This channel would be capable of allocating savings, supporting productive investments and generating resources to be dedicated to health care. The best structuring and concrete functioning of the private pillar is less clear and under discussion. This position paper puts forward an operational proposal: the open capitalisation fund for welfare should offer both pension and health care provisions through real accumulation of contributions on individual accounts, and should be linked to collective insurance coverage against major risks and lack of self-sufficiency. This tool presents numerous positive characteristics, compared to the public pay-as-you-go monopillar as well as to a multipillar system in which the private component consists exclusively or mainly of insurance contracts. In fact, it is necessary to restrict the recourse to pure insurance coverage only to a limited group of treatments, because this kind of coverage is not equipped to deal with the dynamics of future expenses. As the difficulties American insurance companies are experiencing demonstrate, the pure insurance coverage ends up with the recurrence, in the private area, of the same defects as the pay-as-you-go in the public health care systems. Insurance pooling is not but a pay-as-you-go scheme applied over the group of insured members.
    Keywords: public finances sustainability; pensions; health care provisions; long-term care; assistance for the elderly; pay-as-you-go; capitalization; monopillar; multipillar; bismark; beveridge; public; private; diversification of expenditures; diversification od sources of financing
    JEL: H53 I00 H00
    Date: 2011
  9. By: Stephen C. Newbold
    Abstract: Government agencies routinely use the “value of a statistical life” (VSL) in benefit-cost analyses of proposed environmental and safety regulations. Here I review an alternative approach for valuing health risks using a “life-cycle consumption framework.” This framework is based on an explicit individual-level lifetime utility function over health and income at all ages, and so could be used to examine any pattern of health risk changes over a person’s lifespan. I discuss several potential advantages of this framework, both positive and normative. From a positive perspective, this framework can support a functional benefit transfer approach that is more flexible and potentially more accurate than the standard point-value benefit transfer approach based on the VSL, and it can be used to evaluate mortality and morbidity effects simultaneously in an internally consistent model. From a normative perspective, it provides a natural foundation for a social welfare function and therefore could facilitate a unified evaluation of efficiency and equity, as a supplement to traditional benefit-cost analysis.
    Keywords: VSL, life-cycle model, benefit-cost analysis, social welfare analysis, QALY, health-wealth tradeoff
    JEL: I18 J17 Q51
    Date: 2011–04

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