Abdoulaye Ndiaye, Professor, Stern, NYU Economics
Abstract: This paper studies the effects of uncertain wages and health on retirement behavior and derives optimal government pensions and taxes that insure workers against these shocks. The government faces asymmetric information with respect to workers' ability, its evolution, and labor supply. Optimal retirement distortions provide incentives for delayed retirement that increase with age. We provide a novel implementation of optimal retirement distortions with government pensions similar to US Social Security benefits. Quantitatively, raising the age-dependence of Social Security benefits substantially increases work-years and welfare.