Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86667
Authors: 
Belloni, Michele
Alessie, Rob
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-102/3
Abstract: 
Using Italian data, we estimate an option value model to quantify the effectof financial incentives on retirement choices. As far as we know, this isthe first empirical study to estimate the conditional multiple-years modelput forward by Stock and Wise (1990). This implies that we account fordynamic self-selection bias. We also present an extended version of thismodel in which the marginal value of leisure is random.The models yield plausible estimates of the preference parameters. Dynamicself-selection results in a considerable downward bias in the estimate of themarginal utility of leisure. We perform a simulation study to gauge theeffects of a dramatic pension reform. Underestimation of the value of leisuretranslates into sizeable over-prediction of the impact of reform. For thefemale sample, the model is able to predict almost perfectly the age-specifichazard rates. For the male sample, we obtain a good fit. Results for malesshould, however, be interpreted with caution since we are not able to fullycorrect for dynamic self-selection bias.
Subjects: 
retirement
option value model
dynamic self-selection
unobserved preference heterogeneity
JEL: 
J26
H55
C33
C34
C35
Document Type: 
Working Paper

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