Myopia, redistribution and pensions

This paper reviews a number of recent contributions that study pension design with myopic individuals. Its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity. This double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations, which is at the heart of most of the results that are presented. The main part of the paper is devoted to the issue of pension design when myopic individual do not save ‘‘enough’’ for their retirement because their ‘‘myopic self’’ (with a high discount rate) emerges when labor supply and savings decisions are made. Some extensions and variations are considered in the second part. In particular we deal with situations where labor disutility or preferences for consumption are subject to ‘‘habit formation’’ and where sin goods have a detrimental effect on second period health. Myopic individuals tend to underestimate the effects of both habit formation and sinful consumption, which complicates public policy. & 2010 Elsevier B.V. All rights reserved.