TIME INCONSISTENT PREFERENCES AND SOCIAL SECURITY.

Ayşe İMROHOROĞLU
Selahattin IMROHOROĞLU
Douglas H. JOINES

In this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time-inconsistent preferences who face mortality risk, individual income risk, and borrowing constraints. We find that unfunded social security lowers the capital stock, output, and consumption for consumers with time-consistent or time-inconsistent preferences. However, it may raise or lower welfare depending on the strength of time inconsistency.