A closed-form solution for the continuous-time consumption model with endogenous labor income

In this paper, we study the consumption, labor supply, and portfolio decisions of an infinitely lived individual who receives a certain wage rate and income from investment into a risky asset and a risk-free bond. Uncertainty about labor income arises endogenously, because labor supply evolves randomly over time in response to changes in financial wealth. We derive closed-form solutions for optimal consumption, labor supply and investment strategy. We find that deferring the retirement age stimulates optimal consumption over time and discourages optimal labor supply during the working life. We also find explicitly that optimal portfolio allocation becomes more ‘conservative’ when the individual approaches his prescribed retirement age. The effects of risk-aversion coefficients on optimal decisions are examined.     

The importance of financial incentives on retirement choices: New evidence for Italy

This study exploits a new dataset to quantify the effect of financial incentives on retirement choices. This dataset contains—for the first time for Italy—information on seniority. The effects of marginal incentives and social security wealth (SSW) on retirement go in the expected direction; when employees become eligible for pension benefits, the change in financial incentives they experience is so great that their retirement probability increases by 30 percentage points.We also find that the procedure used in previous Italian studies to impute seniority leads to a considerable overestimation of that variable and of SSW. We show that, due to these measurement errors, the estimate of the SSW coefficient takes the wrong sign. A comparison of retirement studies across countries (see Gruber and Wise [Gruber, J., and Wise, D., (2004). Social Security Programs and Retirement Around the World: Micro-Estimation, NBER. The University of Chicago Press, Chicago and London.]) provides prima facie evidence that a lack of good quality data often leads to wrongly signed estimates of the SSW coefficient.     

Mandatory Retirement Rules and the Retirement Decisions of University Professors in Canada

We examine the impact of mandatory retirement on the retirement decisions of professors in Canada using administrative data. Estimation of a discrete time hazard model indicates that faculty members at universities with mandatory retirement at age 65 have exit rates at age 65 that are around 30 to 38 percentage points higher than those of their counterparts at universities without mandatory retirement. This overall difference in exit rates is found when the sample is restricted by discipline, professional rank and type of university. Similar results are found for both men and women; however, the magnitude of this effect is somewhat smaller for women. Restricting the analysis to include faculty members who received their highest degree at age 34 or older does not affect the magnitude of the difference in exit rates between faculty at universities without mandatory retirement and those at universities with mandatory retirement. The estimated survival probabilities indicate that only 22.7% of faculty members employed at age 64 at universities without mandatory retirement will continue to be employed at the same university at age 72.     

Earnings Distribution and Labour Supply after a Retirement Earnings Test Reform*

Norwegian administrative data are used to evaluate the impact of a doubling of the threshold in the retirement earnings test. We find almost no impact on the extensive margin, but a positive effect on the intensive margin. This positive effect is uneven over the earnings distribution, and concentrated on workers around the threshold, increasing with exposure to the reform and leading to a decrease in earnings inequality. Individuals who remain active until retirement age respond more to the reform. Conditional on prereform earnings, we find little evidence that individual characteristics such as working histories influence the responsiveness to the reform.     

The timing of retirement — New evidence from Swiss female workers

We investigate the responsiveness of individual retirement decisions to changes in financial incentives. A reform increased women's normal retirement age (NRA) in two steps from age 62 to age 63 first and then to age 64. At the same time retirement at the previous NRA became possible at a benefit discount. Since the reform affected specific birth cohorts we can identify causal effects. We find strong and robust behavioral effects of changes in financial retirement incentives. A permanent reduction of retirement benefits by 3.4% induces a decline in the age-specific annual retirement probability by over 50%. The response to changes in financial retirement benefits varies with educational background: those with low education respond most strongly to an increase in the price of leisure.     

FLEXIBLE RETIREMENT

Flexible retirement – that is, the opportunity to choose one's own personal retirement age – is a hedge against pension risk and provides insurance to workers facing health or productivity shocks. Flexible retirement and flexible pension schemes are in practice closely linked because of imperfect capital markets and institutional restrictions. I discuss three necessary conditions to provide insurance through flexible retirement. First, it should be possible to adjust the pension starting date at limited cost. This condition is gradually being fulfilled, as many countries are moving toward more actuarially neutral pension schemes. Second, individuals should be willing to adjust their labor supply in case of a wealth shock. This condition seems largely fulfilled, although the available empirical evidence suggests that the ‘standard retirement age’ is at least as important as the income effect. Third, the labor market should be able to deal with flexible individual retirement decisions. This condition is gaining importance, but has not yet received much attention in the literature. Institutions often hamper employment past the ‘standard retirement age’. Moreover, the hiring rates of older workers are low and their unemployment duration is high. Institutional reforms facilitating flexible retirement opportunities are desirable from an insurance perspective.     

Education,lifetime labor supply,and longevity improvements

This paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so-called “Ben–Porath mechanism”. We set up a life-cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation. This paper makes two important contributions. First, we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age. Second, those conditions are decomposed into a Ben–Porath mechanism and a lifetime-human wealth effect vs. the years-to-consume effect. Finally, using US and Swedish data for cohorts born between 1890 and 2000, we show that our model can match the empirical evidence.     

Myopia and pensions in general equilibrium

The US social security tax rate has doubled in the last half century. Does the degree of myopic behavior that we observe in the US justify the size of the social security program? To study this question we build a computable general equilibrium model that is composed of life-cycle permanent-income consumers who save optimally and “hand-to-mouth” consumers who just consume their disposable income. Our model is a continuous-time, general equilibrium extension of the model by Cremer et al. (Int Tax Public Financ 15(5):547–562, 2008), though we abstract from the redistributive function of social security to focus on myopia. Retirement is a choice variable in our model and the social security program is designed to mimic the US program in which the annuity value of benefits increases with the retirement age. Also, we allow for delayed claiming beyond the date of retirement. The model matches a variety of important data targets relating to saving and retirement. We find that small reductions in the social security tax rate provide significant welfare gains to both groups of consumers.     

How an Economic Recession Affects Qualitative Entrepreneurship: Focusing on the Entrepreneur's Exit Decision

This study analyzes how an economic recession affects entrepreneurship from a qualitative perspective. We define entrepreneur as a person who takes risks under uncertainty. Based on this definition, an entrepreneur's exit decision is modeled using real options theory to measure entrepreneur's willingness to accept uncertainty. We find that entrepreneurs who entered before a recession exit when their critical revenue stream reaches 0.16 times the average revenue stream value. The equivalent value for entrepreneurs who enter during an economic recession is 0.33 times the average revenue stream. Furthermore, when uncertainty doubles, the exit probability of entrepreneurs who enter during an economic recession is approximately 2.75 times higher than that of entrepreneurs who enter before recession. We conclude that the majority of entrepreneurs who enter during an economic recession are qualitatively disadvantaged, which leads to the overall decrease in qualitative entrepreneurship. Copyright © 2016 John Wiley & Sons, Ltd.     

House prices, wealth effects, and the Singapore macroeconomy

This paper examines the effect housing wealth has upon aggregate consumption in Singapore. While past research has focused only on changes in private housing wealth, the residential market in Singapore is dominated by the public housing sector. The massive public housing segment can generate potentially different wealth effects from standard private housing markets given the former’s unique institutional features. In particular, public housing owners who sell their units at market rates can repurchase a public flat at subsidized prices whereas private homeowners typically cannot. We estimate the link between consumption expenditure and both private and public housing wealth using a VARX approach for the Q1:1990–Q4:2002 period. We find that changes in private house prices have no significant effect on aggregate consumption. In contrast, public housing wealth effects are larger and more persistent.     

Developments in non-expected utility theories: an empirical study of risk aversion

This paper investigates different developments in non-expected utility theories. Our focus is to study the agent’s attitude towards risk in a context of monetary gambles. Based on simulated data of the “Deal or No Deal” TV game show, we first compare the performance of the expected utility model versus a loss-aversion model. We find that the loss-aversion model has a better performance compared to the expected utility model. We then study the attitude towards risk according to two parameters: the relative risk aversion coefficient defined over the value function and the probability weighting coefficient proposed by the Cumulative Prospect Theory. We find evidence for probability weighting being undertaken by contestants reflecting less risk aversion over large stakes. We also explore the performance of two models of rank-dependant utility: the Quiggin (1982) and the power probability weighting models. We find that the probability weighting coefficient is still significant for both models. Finally, we integrate initial wealth into the contestants’ preferences function and we show that the initial wealth level affects the estimates of risk attitudes.     

EPA enforcement,firm response strategies,and stockholder wealth: an empirical examination

We investigate the effect of EPA pollution control enforcement activities and firm response strategies on stockholders' wealth. We find that the market reacts negatively upon learning that the firm has been targeted, and that losing a contest with the EPA is very costly to stockholders. Apparently firms are not expected to recover a significant part of pollution control costs from their customers. Somewhat surprisingly, losses are only weakly related to the presence of (unregulated) foreign competition, suggesting that untargeted domestic competitors may restrain cost recovery. Our analysis also indicates that firms may benefit by cooperating with the EPA; i.e., compliant strategies reduce (but don't avoid) wealth losses. The losses of firms that settle are about 40% less than those of firms that fight and lose, and we find no evidence of value gains for firms that fight and win. © 1998 John Wiley & Sons, Ltd.     

Mutation of HRM practices in Russia: an application of CRANET methodology

This article describes the challenges facing established practices and patterns of human resource management (HRM) during the economic recession. It is based on the results of the CRANET survey, administered in Russia in the third quarter of 2008, on the 2008 CRANET data available for Bulgaria and on survey of companies' executives, implemented in the first half of 2010. We found that Russian HRM practices that are based on low formalization of performance assessment, great versatility of payment arrangements, and high flexibility of working and contractual arrangements enabled companies to adapt to the recession conditions without massive layoffs.     

The effects of pension rights and retirement age on training participation: Evidence from a natural experiment

This paper uses a natural experiment approach to identify the effects of an exogenous change in future pension benefits on workers' training participation. We use unique matched survey and administrative data for male employees in the Dutch public sector who were born in 1949 or 1950. Only the latter were subjected to a major pension reform that diminished their pension rights. We find that this exogenous shock to pension rights postpones expected retirement and increases participation in training courses among older employees, although exclusively for those employed in large organizations.     

Redefining retirement: age equality and the rise of performance management

How do individuals retire when there is no default retirement age? The changes to the retirement regulations were aimed at extending individual choice, but with the use of performance management, employers have a new tool with which to control the time and manner of retirement. Employees who fail to perform as required are now to be ‘managed out’. Therefore, retirement needs to be treated as an outcome of workplace employment relations with consequences for all age groups.     

Retirement,financial incentives and health

This paper aims to assess empirically the relative size of incentive effects and health for the retirement decision. We specify and estimate a dynamic model for retirement behaviour that explicitly takes account of health and eligibility conditions and replacement rates of alternative exit routes from the labour force. A range of health instruments are constructed from estimates of a model for health dynamics and these are used to assess the effect of reporting errors and of endogeneity of health on the estimates of the retirement model. Our results provide evidence that health and retirement are endogenously related. Health matters but the size of the health effect depends crucially on the health measure used. We find that subjective health measures overstate the effect of health on retirement and that endogeneity of health suppresses the health effect. Incentive effects are relatively insensitive to alternative specifications for health. The incentive effects are strong for early retirement (ER) schemes. There is evidence that income streams in alternative exit routes are compared in the retirement decision and that alternative exit routes act as substitutes.     

IFRS Policy Changes and the Continuation of National Patterns of IFRS Practice

International Financial Reporting Standards (IFRS) contain several policy options. This paper examines the choices made in 2008/9 IFRS financial statements by large listed companies from five countries on all the options that are observable. We compare these choices with those that had been made by the same companies in 2005/6, which (except for the German companies) was the year of transition to IFRS. For Australian and UK companies, we find – as expected – that there were few policy changes. However, despite the constraints on policy change within IFRS, we find that French and Spanish companies not only made more changes than the other companies but that they also made more changes after transition than at transition. Further investigation reveals that these findings are largely driven by a small number of topics. One possible explanation for the pattern of these changes is a ‘learning’ process, which is supported by finding that nearly all the post-transition changes made by the French and Spanish companies were away from previous national requirements. However, we consider other possible explanations. We also present the profiles of IFRS practices for 2008/9. Despite the changes in policy from 2005/6, we find clear evidence that national patterns of IFRS practice continue through the period, so that international comparability remains in doubt.     

延迟退休、生育政策调整与中国经济增长

政府在放松生育政策的同时，配合退休政策的调整具有重要的现实意义。通过构建延迟退休和生育调整的理论模型发现：从劳动力增量看，延迟退休能够产生即期效应，而生育调整具有滞后效应，且两者导致的劳动力增量差距呈现先扩大后缩小的特点，节点在2031年；从社会总负担看，在实行延迟退休后，总抚养比迅速下降到一个低水平位置；从总产出看，同时实施延迟退休和放松生育政策，经济中潜在的福利损失最小；从产出增速看，放开生育的同时配合延迟退休，经济增速下降最慢；从人均产出看，放开生育的同时最好配合延迟退休，否则人均收入提升的效果不如政策不变时效果。