Work

Self-Control preferences and public pension analysis

Year: 2025

Type: article

Abstract: We study the macroeconomic and fiscal effects of self-control preferences on household saving, labor supply, and public pension design. Building on the framework of Gul and Pesendorfer, we develop a quantitative general equilibrium overlapping generations model in which agents face temptations over both consumption and leisure. We use this model to analyze how varying degrees of self-control costs interact with key pension parameters: the taper rate (means testing), the maximum pension benefit, and the eligibility age. We find that stronger self-control preferences increase reliance on public pensions, amplifying fiscal pressure and altering labor supply patterns, particularly among older workers. Means testing can partially mitigate these effects by encouraging private saving and later retirement but involves trade-offs in taxation and welfare. By incorporating self-control preferences into a macroeconomic framework, we highlight how behavioral biases can influence the performance and fiscal impact of alternative pension policies.

Source: Journal of Economic Behavior & Organization

DOI: 10.1016/j.jebo.2025.107338

Authors: Daniel Wheadon, Gonzalo Castex, George Kudrna, Alan Woodland

Institutions: UNSW Sydney, Centre for Population Ageing Research, Australian National University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,180

Funder: Australian Research Council