Temptation and Social Security Distortion
نویسنده
چکیده
I consider the saving and investment decisions of American and Italian consumers in a lifecycle model with temptation preferences. Comparing the choices with and without Social Security protection, I show that savings are postponed, less wealth is accumulated, and the portfolio share held in equities at retirement is larger with Social Security. Social Security distorts the decisions of agents affected by no or little temptation, but is preferred by more tempted ones for the protection it guarantees. The influence of Social Security on individual behavior is stronger in Italy where the size of the program is larger. JEL classification codes: D91, E21, G11.
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