Axel Borsch Supan (Munich Center for the Economics of Aging)

“Human errors and pension reform”

abstract

The talk will discuss the microeconomic, macroeconomic and public policy implications when many households make mistakes due to myopia, procrastination and/or mispredictions.

I will start with the motivation and background for this topic: aging and the general strategy of pension reforms in Europe, including more saving for old-age in order to compensate for benefit cuts in the pay-as-you-go systems. I will then review the evidence whether this strategy has worked in Germany, and especially whether it has worked for those who need it most. I will also present joint work with Susann Rohwedder and Michael Hurd about saving regret and how do individuals perceive and evaluate their inability to have sufficiently saved for old-age.

The second part of the talk models procrastination, myopia, time inconsistency and hyperbolic discounting as part of a multi-national overlapping generations model. I will show the microeconomic effects on consumption planning, asset accumulation, welfare and pension reform, as well as some macroeconomic implications for future interest rates and international capital flows which are important for pension design.