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ECONOMICS OF SAVINGS AND PENSIONS
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ECONOMICS OF SAVINGS AND PENSIONS
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Academic year 2020/2021
- Course ID
- ECO0154
- Teaching staff
- Mariacristina Rossi (Lecturer)
(Lecturer) - Year
- 2nd year
- Teaching period
- Second semester
- Type
- Related or integrative
- Credits/Recognition
- 6
- Course disciplinary sector (SSD)
- SECS-P/01 - economia politica
- Delivery
- Formal authority
- Language
- English
- Attendance
- Optional
- Type of examination
- Written
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Sommario del corso
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Course objectives
Intertemporal choices with and without uncertainty
Complete and Incomplete credit and insurance markets
The certainty equivalence model
Precautionary savings
Uncertainty over the lenght of life and the role of life insurance (annuities)
Imperfect insurance and the role of public pension systems
Pay-as-you -Go and funding the pension systems
DB versus DC methods of calculating pensions
Retirement choices
Pension reforms
The role of Financial Literacy in saving and retirement choices
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Results of learning outcomes
1) Knowledge and understanding
Economic and psychological determinants of savings; functioning of both public and private pension systems; incentive and redistributive effects of pension systems.
2) Applying knowledge and understanding
Application are possible to both simulation and econometric models.
3) Making judgments
Improving the ability to understand the economic determinants of savings, to evaluate the cost-effectiveness of different insurance programs, to compare the cost of different saving products.
4) Communication skills
To acquire greater precision of concepts and language and to learn the economics behind welfare programs
5) Learning skillsFor a successful in learning, students must acquire a good familiarity with economic, financial and risks concepts
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Course delivery
The Course is organized with Lectures, followed by discussions, and possibly a small written composition at the end of the course.
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Learning assessment methods
Written examination:
h.:1.30, maximum mark 30/30, which can be reached by summing the marks obtained in the different questions (generally three questions)
Integration with an oral only after specific advice by the professor
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Support activities
It lab sessions to introduce the use of households data (Bank of Italy data on households)
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Program
Pension systems are designed to meet three main objectives: to allow people to smooth consumption in their life cycle; to prevent poverty in old age; to establish a compact among generations. These goals, in their turn, are meant to insure individual risk, to overcome individual planning limitations and to provide some sharing for aggregate risks. Within the first category of risks, longevity and earnings risks are predominant; within the second, myopia and time inconsistency have to be addressed; within the third, demographic, economic and political risks should be as much diversified as possible.
Starting from this framework, the course aims at placing European pension systems and reforms in the context of the economic theory of households' savings, where imperfect and incomplete (financial and insurance) markets make room for the state to play an insurer's role, besides its traditional redistributive tasks. The logic behind the "insurance perspective" does not imply giving up the traditional objective of solidarity, both within and between generations; indeed, this aim is strengthened by highlighting the key role of risk diversification. Furthermore, thanks to an analytical framework based on insurance, measures aimed at achieving a given distributional goal are easily designed; while, if the insurance framework is ignored, redistribution in practice ends up with unforeseen and undesirable features.
Covered topics are:i. Microeconomic foundations of retirement savings • Basic deterministic saving models: the LCH and the PIH (intertemporal optimization models: assumptions and main results) • Introducing uncertainty • Certainty Equivalence • Permanent Income Hypothesis
• Euler Equation • Precautionary savings • Life uncertainty and its effects. • The introduction of (actuarially fair) life insurance and the dominance of annuities • Why is the market for annuities everywhere so thin? • Why are reverse mortgages almost ignored?ii. An economic analysis of social security (micro and macroeconomic features of social security) • Financing mode: PAYG vs. Funding • Pension formulae (DB vs. DC) • Actuarial fairness and neutrality • Measures of financial sustainability • Measures of adequacy • Redistribution (both within and between generations) • Incentive structure • (Induced) retirement • The aggregate pension wealth (debt) iii. Theoretical and empirical models of retirement • Stylised facts about retirement • Determinants of retirement choice • The implicit tax on postponing retirement (and related measures)
iv. The economics of pension reforms and the importance of Economic-Financial Literacy
• A political economic approach to social security • Assessing the political sustainability of social security reforms • EFL: concept, measurement, stylized facts, consequences of illiteracyThe Course is organized with Lectures, followed by discussions, and possibly a small written composition at the end of the course.
Suggested readings and bibliography
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Selected references
1. Browning, M., A. Lusardi, 1996, "Household Saving: Micro Theories and Micro Facts", Journal of Economic Literature, 34, 1797-1855.
2. Barr N, P. Diamond, Reforming Pensions, http://ssrn.com/abstract=1315444 3.
3. Diamond, P. 2004, 'Social Security', The American Economic Review, 94(1), March 2004
4. Diamond Peter, 2005, "Social Security Rules that Vary with Age", in: Fornero, E. and P. Sestito (eds), 2005, Pension Systems: Beyond Mandatory Retirement, Cheltenham: Edward Elgar
5. Disney, R., "Actuarial-based public pension systems", in: G. Clark, A. Munnell and M. Orszag, The Oxford Handbook of Pensions and Retirement Income, OUP, 2006.
6. French E, 2005, The Effects of Health, Wealth and Wages on the Labour Supply and Retirement, Review of Economic Studies, vol 72, no 2, April , 395-427.
8. Fornero E., Economic-financial literacy and (sustainable) pension reforms: why the former is a key ingredient for the latter, Bankers, Markets & Investors, 134, January-February 2015.
9. Geanakoplos J., O.S. Mitchell, S. P. Zeldes, 1998, "Social Security Money's Worth", PaineWebber WP Series in Money, Economics and Finance 98-05, Columbia Business School, August.
10. Lindbeck A. and M. Persson, 2003, "The Gains from Pension Reform", Journal of Economic Literature, vol. 41 (1), pp. 74-112.11. Mitchell O. S., S. P. Zeldes, 1996, "Social Security Privatization: a Structure for Analysis", American Economic Review, 86(2), pp: 363-67
12. Scholtz K. Seshadri A., Khitatrakun S., 2006, "Are Americans Saving "Optimally" for Retirement?" Journal of Political Economy, 114(4), pp. 607-643.
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Class schedule
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Note
Additional Material will be uploaded into Dropbox folder
The methods of teaching activity could change in according to the limitation imposed by the current health crisis. In any case the e-learning mode is guaranteed throughout the academic year.Le modalità di svolgimento dell'attività didattica potranno subire variazioni in base alle limitazioni imposte dalla crisi sanitaria in corso. In ogni caso è assicurata la modalità a distanza per tutto l'anno accademico.- Oggetto: