We study the optimal provision of social security in a dynamically efficient economy using a continuous-time overlapping-generations model in which consumers have short planning horizons. The short-horizon mechanism leads to dynamic optimization that is time-inconsistent over the life cycle. Our...

We revisit the role of social security in countering inadequate saving for retirement. We compute the optimal social security tax rate for households who lack the computational ability to solve dynamic optimization problems. Instead, they follow the simple rule of thumb of consuming and saving a...

This note offers a new proof of the necessary conditions for fixed endpoint optimal control. Our approach simplifies the conventional derivation of the necessary conditions by using a transversality condition to ensure feasibility of modifications to the optimal path. We further prove that this...

This paper provides a new explanation for the hump-shaped age- consumption profile observed in household data. Standard life-cycle models are based on an optimization problem that spans the entire life expectancy. Alternatively, we examine the consumption profile of an individual with a shorter...

Common wisdom suggests that a fully-funded actuarially fair social security system must increase welfare when households face longevity risk and annuity markets are missing. This wisdom is based on the observation that social security pays benefits as life annuities and therefore appears to...

Empirical evidence suggests that it may cost time, effort, and resources to implement an optimal consumption-saving plan, although the cost may differ across individuals. This paper explores the implications of such friction. We begin by documenting a series of facts on consumption and savings...

Common wisdom suggests that a fully-funded actuarially fair social security system should increase welfare when households face longevity risk and annuity markets are missing. This wisdom is based on the observation that social security pays benefits as life annuities and therefore appears to...

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...