9618698 Diamond This project consists of theoretical and empirical research on the social security system. The theoretical work examines the tradeoffs among labor market disincentives, provision of insurance, and redistribution. Some workers lose their economic opportunities at younger ages than other workers. By having a social security system that varies retirement benefits with the age of retirement the government can provide insurance against this risk. However, any such insurance involves a labor market disincentive. Thus one needs a way to evaluate the balance between providing insurance for those in need and creating distortions in the labor market. The theoretical work continues research that has been done by the investigator in evaluating and optimizing this tradeoff. Previous work considered a setting where individual workers are the same except for the actual realization of their earnings opportunities. However, people differ significantly in their life expectancies and in their utilities from working. Thus this project extends the previous work to examine the tradeoff between incentives for retirement and the provision of insurance in a setting where there is also redistribution because different people have different life expectancies. In addition, there will be a new modeling of the gains and costs of redistribution using social security. The empirical part of the project is based on calculating more thoroughly than before the financial incentives for retirement generated by social security. This will go beyond previous work in recognizing differences in ages between husband and wife and in recognizing variation in life expectancy at retirement age. The calculation of financial incentives when both husband and wife have worked under Social Security is complex. Simulation of such incentives and the use of the simulations in estimation of the responses of retirement decisions will be a major part of the work. In addition, the work will recognize the use of calendar -year earnings in calculating benefits, a use that has implications for the timing of retirement within the year. ??
