Over-Consumption in Behavioral Models and the Role of Social Security

EasyChair Preprint 8072

Abstract

By exploring a class of non-standard consumer preferences for an OLG economy with Social Security, this paper not only provides the mathematical equivalence of the three well-known behavioral models for over-consumption i.e. (i) Quasi-hyperbolic discounting, (ii) Temptation and commitment, and (iii) Reference-dependence with loss aversion, in terms of the key mechanism, but also contributes to the literature on intergenerational distribution related to the pension system. The proposed model in the paper is versatile enough to incorporate over-consumption, as well as under-consumption, in a unified framework among the decision makers who deviate from the standard consumption behavior due to non-exponential time discounting, temptation utility and self-control cost, or low loss aversion. Furthermore, by utilizing an integrated scheme for social security system which allows partial intergenerational transfers, this paper can determine the transition effect from a movement toward a more funded social security system when consumers are prone to over-consume.

Keyphrases: Intergenerational redistribution, Over consumption, Quasi-hyperbolic discounting, Reference-dependence with loss aversion, Social Security, Temptation and commitment

@booklet{EasyChair:8072,
  author    = {Hyeon Park},
  title     = {Over-Consumption in Behavioral Models and the Role of Social Security},
  howpublished = {EasyChair Preprint 8072},
  year      = {EasyChair, 2022}}