Resumen de Recent work on the theory of early retirement

Pierre Pestiau, Helmuth Cremmer, Jean Marie

• Pension systems are often blamed for distorting the retirement age and they are held responsible for the widely observed trend towards early retirement. In a world of laissez-faire or in a first-best setting, there would be no such distortions. However, they may be unavoidable when first-best instruments are not available, because health and productivity are not observable. We show that while there is no doubt that retirement age is too low in many countries, a complete elimination of this bias is not the right answer. In other words, reforms that involve a switch to an actuarially fair system would be overshooting. We present normative and positive arguments. First, some distortions are second-best optimal. Second, and on the positive side, the elimination of the bias might be problematic from a political perspective.