Transcript Minimum Effort Incentives in Team Production

Experimental tests on consumption,
savings and pensions
Enrique Fatás (Lineex and U. Valencia)
Juan A. Lacomba (Lineex and U. Granada)
Francisco Lagos (Lineex and U. Granada)
Ana I. Moro-Egido (Lineex and U. Granada)
Rome 2007
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Motivation (1)
• Reforms of Social Security systems are now one of the main issues
of most of industrialized countries' economic policy agenda.
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A new rule incentives to prolong the
working period beyond the legal
retirement age, 65.
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The german parliament increases
the retirement age up to 67 years
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Motivation (1)
• Reforms of Social Security systems are now one of the main issues
of most of industrialized countries' economic policy agenda.
• Why all these reforms? Two main problems:
 The ageing of the population threats the viability of pay-as-yougo public pension systems.
 Besides, pension systems in virtually all OECD countries in the
mid-1990s made it financially unattractive to work after the age of
55.
• Reforms aiming to increase the effective retirement age have mainly
focussed on the reduction of this implicit tax.
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Motivation (2)
• These reforms are named marginally actuarially FAIR pension
systems and:
 They are supposed to be neutral w.r.t the retirement decisions.
 Life-time Contributions = Pension Benefits.
• However, it could not be the right answer:
It disappears the intergenerational redistribution.
It may tend to undermine the political support for the pension
system itself.
It might be no neutral and no effective.
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Motivation (3)
• Do there exist alternative reforms to delay the retirement decisions?
LUMP-SUM pension systems
- For all the pension benefits.
- For a % of the pension benefits.
- For extra-years worked after 65.
• Fetherstonhaugh and Ross (1999) using a questionnaire find that:
More than 75% of the respondents preferred a one-time
bonus to an increased annuity.
• In the U.S. private industry some type of lump-sum benefit has
become popular as an alternative to annuity payments.
• Fatas, Lacomba and Lagos (2007) find in the lab that:
The more concentrated the payments (shifting from annuity
into lump-sum), the more postponed the retirement decisions.
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Objective
The incorporation of a lump-sum payment as a measure to delay
retirement decisions requires further analysis.
The impact on the poverty rates of the elderly.
The aim of this article is twofold:
To test the potential effects of implementing a lump-sum payment in a public
pension system on consumption and saving behavior.
To analyze how closely the predictions of the optimality theory fit the actual
behavior of subjects in a lab.
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Experimental literature on consumption behavior
Hey and Dardanoni (EJ, 1988).
Ballinger et al (EJ, 2003).
Carbone and Hey (EJ, 2004).
Brown, Camerer and Chua (2006).
---------------- o 0 o ---------------Two novel features of our benchmark:
Future income is uncertain with a decreasing probability of surviving.
Two levels of income: as worker and as retired.
This is the first experimental approach to examine a dynamic
saving-consumption problem in a retirement framework.
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Experimental Design
The experiment consists of at most 30 rounds.
The higher the round, the lower the probability of surviving.
Subjects receive three different levels of income according
to a RETIREMENT period:
A constant level of income during each period before R.
A higher lump-sum of income in R.
From R on subjects receive nothing.
In each round subjects make only one decision: how much
of their Cash Available to Consume/Save in that round.
Borrowing is not allowed.
Savings earn no interest.
Consumption generates points: Points = 10*√consumption.
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Rounds
Pobability of
surviving
LS10
Endowment
LS15
Endowment
Cash
Available
Consumption
Savings
Obtained
Points
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
29/30
28/29
27/28
26/27
25/26
24/25
23/24
22/23
21/22
20/21
19/20
18/19
17/18
16/17
15/16
14/15
13/14
12/13
11/12
10/11
9/10
8/9
7/8
6/7
5/6
4/5
3/4
2/3
1/2
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
85
345
85
---
---
---
191,25
0,00
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Experimental procedures
Experiments were run at LINEEX (Dec, 2006).
2 treatments: LS10 (20 subjects) and LS15 (19 subjects).
In each treatment, subjects played three sequences.
They were paid by one of these three sequences (randomly
selected).
1 h. 40 min. and €27 on average (exchange rate: 125 points
= €1).
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Results: Consumption Decisions -- LS10
100
0
50
Consumption
150
Ex-ante Cons. and Actual Cons. by Seq. (R=10)
0
5
10
15
period
Seq=1
Seq=3
25
30
Seq=2
Ex-ante Cons.
100
150
Ex-post Cons. and Actual Cons. by Seq. (R=10)
0
50
Consumption
20
0
5
10
Seq=1
Seq=3
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15
period
20
Seq=2
Ex-post Cons.
25
30
Results: Consumption Decisions -- LS15
100
0
50
Consumption
150
Ex-ante Cons. and Actual Cons. by Seq. (R=15)
0
5
10
15
period
Seq=1
Seq=3
25
30
Seq=2
Ex-ante Cons.
100
150
Ex-post Cons. and Actual Cons. by Seq. (R=15)
0
50
Consumption
20
0
5
10
Seq=1
Seq=3
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15
period
20
Seq=2
Ex-post Cons.
25
30
Results: Saving Decisions -- LS10
100 150
0
50
Savings
Ex-ante Savs. and Actual Savs. by Seq. (R=10)
0
5
10
15
period
Seq=1
Seq=3
20
25
30
Seq=2
Ex-ante Savs.
100 150
0
50
Savings
Ex-post Savs. and Actual Savs. by Seq. (R=10)
0
5
10
Seq=1
Seq=3
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15
period
20
Seq=2
Ex-post Savs.
25
30
Results: Saving Decisions -- LS15
0
50
100150
Savings
Ex-ante Savs. and Actual Savs. by Seq. (R=15)
0
5
10
15
period
Seq=1
Seq=3
20
25
30
Seq=2
Ex-ante Savs.
100 150
0
50
Savings
Ex-post Savs. and Actual Savs. by Seq. (R=15)
0
5
10
Seq=1
Seq=3
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15
period
20
Seq=2
Ex-post Savs.
25
30
Results: Behavioral Analysis
POOLED
ACTUAL
CONSUMPTION
OPTIMAL
CONSUMPTION
ENDOWMENT
BREAK=10
EXANTE
EXPOST
EXANTE
BREAK=15
EXPOST
EXANTE
EXPOST
-0.019
-0.374***
0.225***
0.511***
1.072*
1.149*
0.759***
1.623***
-0.201
-1.222***
0.157*
0.295**
[0.121]
[0.132]
[0.081]
[0.087]
[0.571]
[0.603]
[0.266]
[0.253]
[0.169]
[0.152]
[0.094]
[0.115]
0.385***
0.370***
0.366***
0.314***
0.366***
0.389***
[0.024]
[0.024]
[0.040]
[0.044]
[0.034]
[0.027]
CASH
AVAILABLE
0.005
0.007
-0.008
-0.018*
0.058***
0.087***
[0.008]
[0.008]
[0.010]
[0.010]
[0.016]
[0.017]
Observations
1172
1172
1172
1172
754
754
754
754
418
418
418
418
R-squared
0.41
0.28
0.41
0.29
0.31
0.23
0.31
0.26
0.53
0.41
0.53
0.33
Standard errors in brackets * significant at 10%; ** significant at 5%; *** significant at 1%
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Concluding remarks
If a lump-sum system is implemented, could the poverty rates as retired
be increased?
Our results suggest that lump-sum payments could not yield increases in
the elderly poverty rates.
Participants under-consume in the earliest periods.
Subjects over-react to the lump-sum payments.
After R, participants seem to smooth their consumption decisions.
Subjects over-saved.
Comparing treatments: the earlier and the lower the lump-sum
payment, the higher the saving reaction.
Behavioral explanation: consumers seem to spend a fixed fraction of
their endowment (more than of their cash available).
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