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Assessing the Welfare Change from a Pension Reform
Stockholm University, Faculty of Social Sciences, Department of Economics.
2011 (English)In: International Tax and Public Finance, ISSN 0927-5940, E-ISSN 1573-6970, Vol. 18, no 6, 634-657 p.Article in journal (Refereed) Published
Abstract [en]

We study the welfare implications of a hypothetical reform of the Swedish public pension system where eligibility to pension benefits is delayed by 3 years. Using an option value model, we consider the labor supply responses to the reform and develop a compensating variation (CV) measure to analytically assess the individual welfare changes in a random utility framework. We find that a purely budgetary calculation (neglecting individual labor supply responses) overestimates the welfare loss by more than 65%. We also develop a method for testing between a binary and a multinomial option value model, where the binary one is nested in the multinomial model in a Generalized Extreme Value (GEV) model framework. The binary model cannot be rejected.

Place, publisher, year, edition, pages
2011. Vol. 18, no 6, 634-657 p.
Keyword [en]
Compensating variation measure, Option value model, Random utility, Social security reform
National Category
URN: urn:nbn:se:su:diva-71382DOI: 10.1007/s10797-011-9178-8ISI: 000300367200002OAI: diva2:484747
Available from: 2012-01-27 Created: 2012-01-27 Last updated: 2012-04-12Bibliographically approved

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Palme, Mårten
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