Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207429 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12604
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Subjective expectations about future policy play an important role in individuals' welfare. We examine how workers' expectations about pension reform vary with proximity to reforms, information cost, and aggregate information acquisition. We construct a new pan-European dataset of reform implementations and government announcements, and combine it with individual-level representative survey data on expectations about future reforms and country-level data on online search. We find: (1) Expectations are revised upward by about 10 percentage points in the year leading up to a reform, from a median of 50%, regardless of whether the reform is announced; (2) Aggregate online search increases after announcements, when the cost of information is lower; (3) Reform announcements and online information gathering are substitutes in the formation of expectations; (4) Expectations do not converge as a result of announcements or implementations; (5) The effect of information on expectations varies substantially across workers and systematically with observed characteristics that proxy cognitive ability and information value. These findings, interpreted using a model of rational inattention, reveal substantial informational rigidities, with welfare costs that run into trillions of Euros.
Subjects: 
expectations
retirement
pension reform uncertainty
reform announcement
online search
rational inattention
JEL: 
C8
D84
D91
J14
Document Type: 
Working Paper

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