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12:30 - 13:45 14 November 2012

The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security (Joint with Andrew Samwick)


IFS Conference Room | Institute for Fiscal Studies (link Map)
7 Ridgmount Street | London | WC1E 7AE |

Open to: Academic | Student
Ticketing: Open

Speaker information

Erzo Luttmer, Darthmouth College

Policy uncertainty can reduce individual welfare in cases when individuals have limited opportunities to mitigate or insure against consumption fluctuations induced by the policy uncertainty. For this reason, policy uncertainty surrounding future Social Security benefits may have important welfare costs. We field an original survey to measure the degree of policy uncertainty and to estimate the impact of this uncertainty on individual welfare. On average, our survey respondents expect only about 60 percent of the benefits they are supposed to get under current law. We document the wide variation around the expectation for most respondents and the heterogeneity in the perceived distributions of future benefits across respondents. This uncertainty has real costs. Our central estimates show that on average individuals would be willing to forego 4 – 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future benefits.


Institute for Fiscal Studies
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