Working Paper
-
Who Insures the Insurer? Social Security Solvency Risk, Claiming, and Work
Abstract
Social Security insures households against old-age income risk. But when Social Security itself becomes fiscally risky, households must insure against the insurer. I study how perceived solvency risk changes retirement behavior before any reform is enacted. I build a life-cycle model in which older households jointly choose saving, work, and benefit claiming, allowing them to claim Social Security while continuing to work. Comparing scheduled benefits, a deterministic expected-benefit reduction, and a stochastic solvency-risk environment, I find that recent high-solvency-risk conditions raise employment at ages 62–69 by 4.0 percentage points and increase the claimed-and-working share by 4.3 percentage points. Welfare losses are sizable but mostly reflect lower expected benefits rather than uncertainty itself: the total consumption-equivalent cost is about 4.2 percent of lifetime non-bequest consumption, while the pure-risk component is close to zero on average. Unresolved solvency risk is already a household-level economic shock, inducing older households to self-insure through work and claiming.
Work in Progress
-
Ambiguity Aversion and Fertility Decisions
Abstract
This paper investigates how ambiguity aversion affects fertility decisions, considering the uncertainty surrounding the benefits of parenthood. We extend the Becker and Barro (1988) fertility model by incorporating ambiguity aversion to capture parents' decision-making process accurately. We assume that individuals care about their own and children's well-being and face ambiguity about their children's future abilities. Using a multiple priors utility framework, we model parents' preferences as maximizing their minimum expected utility of descendants, focusing on the worst-case scenario for their child's ability. Our findings suggest that more ambiguity-averse parents tend to have fewer children, as they emphasize the lowest possible outcome. This insight helps explain declining fertility rates and rising childlessness in developed countries, as individuals prioritize predictable outcomes over uncertain returns of parenthood.