nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒06‒02
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Tradeoff Between Health and Wealth in Retirement Decisions By Kristine M. Brown
  2. Proving incentives for long-term investment by pension funds -- the use of outcome-based benchmarks By Stewart, Fiona
  3. Ageing populations, retirement incomes and public policy: what really matters By Littlewood, Michael
  4. The measurement of international pension obligations - Have we harmonised enough? By Dirk van der Wal
  5. Roadblocks on the Road to Grandma's House: Fertility Consequences of Delayed Retirement By Battistin, Erich; De Nadai, Michele; Padula, Mario
  6. Differential Mortality and Retirement Benefits in the Health and Retirement Study By Barry P. Bosworth; Kathleen Burke
  7. Pension design with a large informal labor market: Evidence from Chile By Clement Joubert
  8. Is the Social Security Crisis Really as Bad as We Think? By Bagchi, Shantanu
  9. What Impact Does Social Security Have on the Use of Public Assistance Programs Among the Elderly By Norma B. Coe; April Yanyuan Wu
  10. Mortality Decline, Impatience and Aggregate Wealth Accumulation with Risk-Sensitive Preferences By Antoine Bommier
  11. Individual and Societal Wisdom: Explaining the Paradox of Human Aging and High Well-Being By Jeste, Dilip V; Oswald, Andrew J
  12. Coresidency, Ethnicity, and Happiness of China's Rural Elders By Connelly, Rachel; Iannotti, Michael; Maurer-Fazio, Margaret; Zhang, Dandan
  13. Participation Constraints in Pension Systems By Beetsma, Roel; Romp, Ward E
  14. Privatization and Quality: Evidence from Elderly Care in Sweden By Bergman, Mats; Johansson, Per; Lundberg, Sofia; Spagnolo, Giancarlo
  15. Means-tested long term care and family transfers By Cremer, Helmuth; Pestieau, Pierre

  1. By: Kristine M. Brown
    Abstract: In the United States, because access to health insurance is tied to employment, the availability of retiree health insurance interacts with post-retirement income to shape the retirement decision. This paper uses administrative data from the California Department of Education to estimate the rate at which individuals’ trade off post-retirement health insurance benefits for a longer retirement and for retirement income benefits. The sensitivity of retirement to the return to working in terms of post-retirement health insurance is estimated. This estimate is then compared to the sensitivity of retirement to pension generosity in order to determine the implied rate at which individuals substitute between health insurance and pension benefits. The two estimation methods used leverage plausibly exogenous benefit variation driven by the sharp features of the retiree benefit programs. The results imply that individuals will delay retirement to become eligible for retiree health benefits, but that the effect is small relative to the effect of pension benefits on retirement timing.
    Date: 2014–05
  2. By: Stewart, Fiona
    Abstract: A fundamental goal of any pension system is to ensure that members receive an adequate income when they retire. Although traditional defined benefit pension plans set out how pension income will be determined in advance and then strive to deliver this, the growing number of defined contribution plans accumulate a sum of assets which can then be turned into a pension income on retirement. However, the amount of this retirement income is not predefined This frequently leads to a focus by not only most pension providers, but also regulators and pension plan members themselves on the short-term accumulation of pension assets rather than the longer-term goal of securing an adequate retirement income. This paper discusses a possible solution to this challenge: the use of benchmarks to encourage pension funds to invest with the longer-term goal of delivering adequate retirement income in mind. Examples are provided of leading pension funds that already work with long-term, outcome-based benchmarks. The paper suggests a methodology for pension regulators to use in order to incentivize pension funds in their jurisdictions to adopt a similar approach.
    Keywords: Debt Markets,Emerging Markets,Pensions&Retirement Systems,Investment and Investment Climate,Non Bank Financial Institutions
    Date: 2014–05–01
  3. By: Littlewood, Michael
    Abstract: When setting public policies on retirement incomes, governments should focus on objectives they have a unique capacity to influence. Only governments can reliably eliminate poverty in old age, level the tax and regulatory playing fields for financial service providers/savers and gather impeccable, deep data. They can also help citizens to understand the things that really matter to individual saving decisions. Governments should avoid trying to influence or direct private provision for retirement by tax breaks or compulsion (‘hard’ or ‘soft’). That those common interventions seem not to work is only one of their many shortcomings. Then, citizens and employers should make their own decisions about financial provision for retirement.
    Keywords: retirement incomes, public policy, universal pension, private provision
    JEL: H55 J14 J26
    Date: 2014–05–27
  4. By: Dirk van der Wal
    Abstract: In the domain of pension statistics comparability of pension entitlements across countries improved substantially due to new SNA/ESA recommendations. In the near future, inclusion of unfunded employment related pension schemes in the core accounts or in the supplementary table on pensions will become the standard. This paper analyses pension entitlements for twelve OECD-countries according to the new compilation standards. In spite of constructive European harmonisation efforts, the paper identifies a number of measurement differences that may hamper a fair comparison of pension liabilities.
    Keywords: pensions; pension entitlements; discount rate; national accounts; defined benefit; funding; fair value; public sector pensions; actuarial evaluation
    JEL: G23 H55 H75
    Date: 2014–05
  5. By: Battistin, Erich; De Nadai, Michele; Padula, Mario
    Abstract: We investigate the role of grandparental childcare for fertility decisions of their offspring. Exploiting pension reforms in Italy, we argue that delayed retirement means a negative shock to the supply of informal childcare for the next generation. We show that one additional grandparent available in the early child-bearing years increases by 5% the number of children. Effects are limited to the most familistic close-knits, and are not the mechanical consequence of changes in living arrangements, investment in education or labor supply. Given the Italian lowest low fertility, we conclude that pension reforms may have had unintended inter-generational effects.
    Keywords: Fertility; Informal Child Care; Pension Reforms
    JEL: H42 J08 J13
    Date: 2014–04
  6. By: Barry P. Bosworth; Kathleen Burke
    Abstract: This analysis uses data from the Health and Retirement Study (HRS) to examine the sources of variation in mortality for individuals of varying socioeconomic status. The use of the HRS allows a distinction between education and a measure of career earnings as primary determinants of socioeconomic status for men and women separately. We use those predictions of mortality to estimate the distribution of annual and lifetime Old Age, Survivors, and Disability Insurance benefits for different birth cohorts spanning the birth years from 1900 to 1950. We find differential rates of mortality have had substantial effects in altering the distribution of lifetime benefits in favor of higher income individuals.
    Date: 2014–04
  7. By: Clement Joubert (Department of Economics, University of North Carolina at Chapel Hill)
    Abstract: This paper investigates empirically the fiscal and welfare trade-offs involved in designing a pension system when workers can avoid participation by working informally. A dynamic behavioral model captures a household's labor supply, formal/informal sector choice and saving decisions under the rules of Chile's canonical privatized pension system. The parameters governing household preferences and earnings opportunities in the formal and the informal sector are jointly estimated using a longitudinal survey linked with administrative data from the pension system's regulatory agency. The parameter estimates imply that formal jobs rationing is limited and that mandatory pension contributions play an sizeable role in encouraging informality. Our policy experiments show that Chile could achieve a reduction of 23% of minimum pension costs, while guarantying the same level of income in retirement, by increasing the rate at which the benefits taper off.
    Keywords: pension reform, informality, segmentation
    JEL: J24 J26 E26 O17
    Date: 2014–03–01
  8. By: Bagchi, Shantanu
    Abstract: Because they ignore the household-level and macroeconomic adjustments associated with longevity improvements, the actuarial projections of the Social Security Administration overestimate the Social Security crisis. Using a general-equilibrium model with heterogeneous agents and incomplete markets, I show that accounting for these adjustments, a significantly smaller decline in benefits is needed to balance the Social Security budget. Households respond to the longevity improvements by delaying retirement and Social Security benefit collection, working more hours, and by also saving more. In general equilibrium, these effects lead to a natural expansion of Social Security's tax base and generate significant delayed retirement credits, which the actuarial estimates completely overlook.
    Keywords: Social Security; longevity improvement; general equilibrium; delayed retirement; delayed retirement credit
    JEL: E21 H55 J22
    Date: 2013–08
  9. By: Norma B. Coe; April Yanyuan Wu
    Abstract: Low take-up by elderly Americans in most means-tested federal programs is a persistent and puzzling phenomenon. This paper seeks to measure the causal effect of the benefit levels on elderly enrollment in two public assistance programs – the Supplemental Nutrition Assistance Program (SNAP) and the Supplemental Security Income (SSI) program – by using the variation in SNAP and SSI eligibility and benefit levels introduced by Social Security retirement benefits. Our findings are three-fold. First, the low take-up among the elderly is not driven by changes in the composition of the eligible pool: individuals who become eligible as they age exhibit average take-up patterns that are similar to those who were eligible before reaching Social Security benefit claiming ages. Second, Social Security has a significant impact on the use of public assistance programs among the elderly, because the increase in income decreases the potential benefits available from public programs. Third, we estimate different behavioral responses to SNAP and SSI programs: a $100 increase in SSI benefits leads to a 4-6-percentage-point increase in the probability of taking up SSI, but we are unable to estimate consistent results on how benefits impact the take up for SNAP. Together with the fact that eligible individuals who begin receiving Social Security benefits continue to participate in SSI more often than they maintain SNAP enrollment, we posit that the different estimated behavioral responses could be due to individual preferences for cash over in-kind transfers.
    Date: 2014–05
  10. By: Antoine Bommier
    Abstract: The paper discusses the impact of longevity extension on aggregate wealth accumulation, accounting for changes in individual behaviors as well as changes in population age structure. It departs from the standard literature by adopting risk-sensitive preferences. Human impatience is then closely related to mortality rates and aggregate wealth accumulation appears to be much more sensitive to demographic factors than usually found. Illustrations are provided using historical mortality data from different countries.
    Keywords: longevity, life-cycle savings, wealth accumulation, risk-sensitive preferences, risk aversion
  11. By: Jeste, Dilip V (University of California, San Diego); Oswald, Andrew J (Department of Economics, University of Warwick)
    Abstract: Objective - Although human aging is characterized by loss of fertility and progressive decline in physical abilities, later life is associated with better psychological health and well-being. Furthermore, there has been an unprecedented increase in average lifespan over the past century without corresponding extensions of fertile and healthy age spans. We propose a possible explanation for these paradoxical phenomena. Method - We reviewed the relevant literature on aging, well-being, and wisdom. Results - An increase in specific components of individual wisdom in later life may make up for the loss of fertility as well as declining physical health. However, current data on the relationship between aging and individual wisdom are not consistent, and do not explain increased longevity in the general population during the past century. We propose that greater societal wisdom (including compassion) may account for the notable increase in average lifespan over the last century. Data in older adults with serious mental illnesses are limited, but suggest that many of them too experience improved psychosocial functioning, although their longevity has not yet increased, suggesting persistent stigma against mental illness and inadequate societal compassion. Conclusions - Research should focus on the reasons for discrepant findings related to age-associated changes in different components of individual wisdom; also, more work is needed on the construct of societal wisdom. Studies of wisdom and well-being are warranted in older people with serious mental illnesses, along with campaigns to enhance societal compassion for these disenfranchised individuals. Finally, effective interventions to enhance wisdom need to be developed and tested. Key words: Life-cycle happiness ; subjective well-being ; wisdom ; psychiatry ; U shape JEL classification: I31 ; D01 ; C18
    Date: 2014
  12. By: Connelly, Rachel (Bowdoin College); Iannotti, Michael (Bates College); Maurer-Fazio, Margaret (Bates College); Zhang, Dandan (Peking University)
    Abstract: As China moves into the ranks of aged societies, coresidency of elders with their adult children has become an increasingly important policy concern. This article utilizes data from the 2000 Population Census of China and the 2011 Chinese Household Ethnicity Survey (CHES) to analyze coresidency patterns of rural elders in seven Chinese provinces with high concentrations of ethnic minority populations. We also explore one consequence of coresidency, reported happiness. We find that socioeconomic variables matter in the determination of coresidency in China in ways that are very similar to their roles in other countries. However, changes between 2000 and 2011 in the effects of age and widowhood show that coresidency decisions among rural elders provinces are transitioning from child-centric to parent-centric. Our analysis also reveals the large role cultural norms play in determining coresidency, as evidenced by differences across ethnic groups. The CHES data allow us to compare coresidency across ethnicity with respect to both individual and regional degrees of assimilation versus isolation. Elders who do not speak Mandarin have higher rates of coresidency than those who do. Additionally, those who live in counties with low rates of intermarriage and intergroup friendships are also more likely to coreside. In exploring the determinants of happiness, we find again that socioeconomic and demographic conditions matter, as does ethnicity. Controlling all else, coresidency increases the happiness of the elderly by about 28 percent. Moreover, the unobserved characteristics that drive coresidency are highly detrimental to the happiness of the elderly.
    Keywords: coresidency, happiness, ethnicity, Minzu, global life satisfaction, elders, living arrangements, China Household Ethnicity Survey, China
    JEL: D13 J12 J14 J15
    Date: 2014–05
  13. By: Beetsma, Roel; Romp, Ward E
    Abstract: We explore voluntary participation in pension arrangements. Individuals only participate when participation is more attractive than autarky. The benefit of participation is that risks can be shared with future generations. We apply our analysis to a pay-as-you-go system, a funded system without buffers and a funded system with buffers. Buffers play a particularly interesting role, because they raise the sensitivity of the contributions to the asset returns. In particular, compared to a system without buffer requirements, they require higher contributions when asset returns are low. Moreover, individual contributions may be increasing or decreasing in the size of the young cohort, depending on whether the fund has more or less reserves than required. We confine ourselves to recursive settings and study equilibria characterised by thresholds on the contribution that young generations are prepared to make assuming that the future young apply the same threshold. For standard parameter settings two such equilibria exist, of which only the one with the higher threshold is consistent with the initial young being prepared to start the system. Finally, we explore the social welfare maximising policy parameter settings for various levels of uncertainty and risk aversion.
    Keywords: buffers; Participation constraints; pay-as-you-go; pension funds; risk-sharing
    JEL: E62 H55
    Date: 2013–09
  14. By: Bergman, Mats; Johansson, Per; Lundberg, Sofia; Spagnolo, Giancarlo
    Abstract: Non-contractible quality dimensions are at risk of degradation when the provision of public services is privatized. However, privatization may increase quality by fostering performance-improving innovation, particularly if combined with increased competition. We assemble a large data set on elderly care services in Sweden between 1990 and 2009 and estimate how opening to private provision affected mortality rates – an important and not easily contractible quality dimension – using a difference-in-difference-in-difference approach. The results indicate that privatization and the associated increase in competition significantly improved non-contractible quality as measured by mortality rates. It also reduced the cost per resident, although left total cost unaffected.
    Keywords: competition; incomplete contracts; limited enforcement; mortality; nursing homes; outsourcing; performance measurement; privatization; procurement; public services; quality
    JEL: H57 I18 L33
    Date: 2014–04
  15. By: Cremer, Helmuth; Pestieau, Pierre
    Abstract: One of the pervasive problems with means-tested public long term care (LTC) programs is their inability to prevent individuals who could a¤ord private long term services from taking advantage of public care. They often manage to elude the means-test net through strategic impoverishment. We show in a simple model how this problem comes about, how it a¤ects welfare and how it can be mitigated.
    Keywords: Long term care, means-testing, strategic impoverishment, opting out, public insurance, altruism.
    JEL: H2 H5
    Date: 2014–05

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