Household Saving Behavior and Social Security Privatization
I develop a general equilibrium model of saving behavior in which the quality of financial decisions in endogenously determined by the incentives to exert effort in learning about financial opportunities. The model generates realistic predictions for asset market participation, portfolio returns and financial planning effort. In this model, social security privatization affects household search effort, asset market participation and the competitiveness of the asset market. Privatization reduces average welfare and this reduction is 20% larger due to asset market frictions.
This paper was presented at the August 2011 meeting of CFSP's Savings and Financial Underpinnings of Macro Models Workshop. The corresponding presentation and discussion are also available.