Fatás, Enrique Lacomba, Juan A. Lagos, Francisco Moro-Egido, Ana I.
Year of Publication:
[Journal:] SERIEs - Journal of the Spanish Economic Association [ISSN:] 1869-4195 [Volume:] 4 [Year:] 2013 [Issue:] 4 [Pages:] 393-413
This article examines the potential risks on consumption behavior of lumpsum payments. As a pension, lump-sum payments could be consumed too fast and generate an increase of poverty rates. We experimentally investigate consumption behavior in an inter-temporal decision-making setting. Subjects make consumption and saving decisions in an environment with two central features: first, there exists a decreasing probability of survival; and second, in addition to the regular income they get while active, they receive a unique lump-sum payment when retired. The results of this experiment show that rather than consuming too much during their income periods, subjects show a persistent precautionary saving behavior and over-save in the vast majority of periods. This result seems to be mainly driven by the risk averse individuals.
Experimental test Consumption Savings Lump-sum payment