%I IMT Institute for Advanced Studies Lucca
%N  
%T Social security in a two-country model with myopic agents
%A Xue Wen
%L eprints1647
%X In a standard two-period overlapping generations model, two symmetric countries are involved, each with a PAYG pension system. This paper focuses on how myopic households may affect the optimal pension policy under both non-cooperative and cooperative schemes. It distinguish between the cases when the pension authority considers the welfare function with only the current welfare of the living generations and when they consider the lifetime welfare of the living generations. Assuming perfect international capital mobility, international cooperation among national pension authorities boosts capital accumulation when the international authority only considers the current welfare of living generations, even though the presence of myopic individuals lowers the welfare gain from cooperation. When the lifetime welfare is considered, international cooperation may depress capital accumulation, however, with enough myopes in the economy, international cooperation again boosts capital accumulation. The size of the PAYG system increases with the number of myopic individuals in the cooperative equilibrium. In the non-cooperative equilibrium, this relationship only holds when each national authority considers lifetime wellbeing of the living generation.
%D 2012