Myopia, redistribution and pensions

This paper reviews a number of recent contributions that study pension design with
myopic individuals. Its objective is to explore how the presence of more or less myopic
individuals affects pension design when individuals differ also in productivity. This
double heterogeneity gives rise to an interesting interplay between paternalistic and
redistributive considerations, which is at the heart of most of the results that are
presented. The main part of the paper is devoted to the issue of pension design when
myopic individual do not save ‘‘enough’’ for their retirement because their ‘‘myopicself’’
(with a high discount rate) emerges when labor supply and savings decisions are made.
Some extensions and variations are considered in the second part. In particular we deal
with situations where labor disutility or preferences for consumption are subject to
‘‘habit formation’’and where sin goods have a detrimental effect on second period
health. Myopic individuals tend to underestimate the effects of both habit formation
and sinful consumption, which complicates public policy.