Hostname: page-component-cd9895bd7-mkpzs Total loading time: 0 Render date: 2024-12-23T05:36:23.109Z Has data issue: false hasContentIssue false
  • English
  • Français

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].
Get access Rights & Permissions [Opens in a new window]

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Andersen, Torben M. and Bhattacharya, Joydeep (2011) On myopia as rationale for social security. Economic Theory 47 (1), 135–158.Google Scholar
Bucciol, Alessandro (2011) A note on social security welfare with self-control problems. Macroeconomic Dynamics 15 (4), 579–594.Google Scholar
Caliendo, Frank N. (2011) Time-inconsistent preferences and social security: Revisited in continuous time. Journal of Economic Dynamics and Control 35 (5), 668–675.Google Scholar
Conesa, Juan Carlos and Garriga, Carlos (2003) Status quo problem in social security reforms. Macroeconomic Dynamics 7, 691–710.Google Scholar
Cremer, Helmuth, De Donder, Philippe, Maldonado, Dario, and Pestieau, Pierre (2008) Designing a linear pension scheme with forced savings and wage heterogeneity. International Tax and Public Finance 15 (5), 547–562.Google Scholar
Emre, Önsel (2007) Time Inconsistency and Social Security. Working paper, University of Chicago.Google Scholar
Feldstein, Martin (1985) The optimal level of social security benefits. Quarterly Journal of Economics 100 (2), 303–320.Google Scholar
Guvenen, Fatih (2009) A parsimonious macroeconomic model for asset pricing. Econometrica 77 (6), 1711–1750.Google Scholar
Hayek, Friedrich von (1960) The Constitution of Liberty. London: University of Chicago Press.Google Scholar
Homburg, Stefan (2000) Compulsory savings in the welfare state. Journal of Public Economics 77 (2), 233–239.Google Scholar
Homburg, Stefan (2006) Coping with rational prodigals: A theory of social security and savings subsidies. Economica 73, 47–58.Google Scholar
Hosseini, Roozbeh (2010) Adverse Selection in the Annuity Market and the Role for Social Security. Working paper, Arizona State University.Google Scholar
Huang, He, İmrohoroğlu, Selahattin, and Sargent, Thomas J. (1997) Two computations to fund social security. Macroeconomic Dynamics 1 (1), 7–44.CrossRefGoogle Scholar
İmrohoroğlu, Ayşe, İmrohoroğlu, Selahattin, and Joines, Douglas H. (1995) A life cycle analysis of social security. Economic Theory 6 (1), 83–114.Google Scholar
İmrohoroğlu, Ayşe, İmrohoroğlu, Selahattin, and Joines, Douglas H. (2003) Time-inconsistent preferences and social security. Quarterly Journal of Economics 118 (2), 745–784.Google Scholar
Kotlikoff, Laurence J. (1987) Justifying public provision of social security. Journal of Policy Analysis and Management 6 (4), 674–689.Google Scholar
Kotlikoff, Laurence J. (1989) On the contribution of economics to the evaluation and formation of social insurance policy. American Economic Review 79 (2), 184–190.Google Scholar
Prescott, Edward C. (2004a) It's irrational to save. Wall Street Journal, pp. 1–3, December 29.Google Scholar
Prescott, Edward C. (2004b) Why does the government patronize us? Wall Street Journal, pp. 1–3, November 11.Google Scholar
Sheshinski, Eytan (2008) The Economic Theory of Annuities. Princeton, NJ: Princeton University Press.Google Scholar