Center for Economic Studies and ifo Institute (CESifo), Munich
The traditional approach to flexible retirement (e.g. NDC) neglects the impact of asymmetric information on actuarial fairness (neutrality). The mechanism design approach (e.g. Diamond, 2003) gives up the requirement of neutrality and looks for a redistributive second-best benefit-retirement-age schedule. Trying to combine the two approaches, the present paper determines the neutral (redistribution-free) second-best solution. This neutral solution is, however, often Pareto-dominated by the redistributive one.
flexible retirement asymmetric information actuarial fairness (neutrality) mechanism design