What effect does an increase in f have on savings

Reference no: EM131212529

For the myopia model, assume a pay-as-you-go pension system. The consumers overestimate the generosity of the pension scheme and believe that the pension, ß, and the social security tax, τ, are related by ß = (1 + φ)τ, where φ > 0. There is no population growth, so the true value of the pension is ß = τ. What effect does an increase in f have on savings? Does welfare increase or decrease in φ? Should we have the social security program when consumers have this from of myopia?

Reference no: EM131212529

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