Abstract
We compare a retirement decision in the presence of a social security system with that in the first-best allocation, using an overlapping-generations model in which the labor supply of elderly agents is endogenous. We show that although the social security subsidizes a retirement decision, the retirement period may be shorter than in the first-best allocation. More importantly, such results occur even when the retirement decision (i.e., leisure demand) is not backward-bending. We also show that the levels of elasticity in decisions regarding retirement and consumption among both young and old agents play important roles.
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