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ROOSEVELT AND PRESCOTT COME TO AN AGREEMENT

Published online by Cambridge University Press:  18 June 2013

Frank N. Caliendo  and
Nick L. Guo
Frank N. Caliendo*
Affiliation:
Utah State University
Nick L. Guo
Affiliation:
Utah State University
*
Address correspondence to: Department of Economics and Finance, 3565 Old Main Hill, Utah State University, Logan, UT 84322-3565, USA; e-mail: [email protected].
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Abstract

Edward C. Prescott has argued that mandatory saving is socially desirable because it solves the problem of people intentionally free riding and becoming a welfare burden. Inspired by Prescott's argument, we develop a model in which rational individuals choose between saving and free riding. We find that free riding is a robust outcome for a significant share of the population and that everyone, including the free riders, benefits from the elimination of free riding through mandatory saving. Our results strengthen Prescott's position that free riding is a serious problem and that mandatory saving is socially desirable.

Keywords

Social SecurityWelfareFree Riding
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 6 , September 2014 , pp. 1383 - 1402
Copyright
Copyright © Cambridge University Press 2013 

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