Estimating Life-Cycle Parameters from Consumption Behavior at Retirement / John Laitner, Dan Silverman.

Format:

Book

Author/Creator:

Laitner, John.

Contributor:

National Bureau of Economic Research.

Silverman, Dan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11163.

NBER working paper series no. w11163

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Using pseudo-panel data, we estimate the structural

parameters of a life--cycle consumption model with discrete labor

supply choice. A focus of our analysis is the abrupt drop in

consumption upon retirement for a typical household. The

literature sometimes refers to the drop, which in the U.S.

Consumer Expenditure Survey we estimate to be approximately 16%,

as the "retirement--consumption puzzle." Although a downward

step in consumption at retirement contradicts predictions from

life--cycle models with additively separable consumption and

leisure, or with continuous work-hour options, a consumption jump

is consistent with a setup having nonseparable preferences over

consumption and leisure and requiring discrete work choices. This

paper specifies a life--cycle model with these latter two elements, and it uses the empirical magnitude of the drop in consumption at

retirement to provide an advantageous method of identifying

structural parameters --- most importantly, the intertemporal

elasticity of substitution.

Notes:

Print version record

March 2005.