Abc Inventory Control
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research
Volume Title: The Economics of Aging Volume Author/Editor: David A. Wise, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-90295-1 Volume URL: http://www.nber.org/books/wise89-1 Conference Date: March 19-22, 1987 Publication Date: 1989
Chapter Title: A Dynamic Programming Model of Retirement Behavior Chapter Author: John P. Rust Chapter URL: http://www.nber.org/chapters/c11588 Chapter pages in book: (p. 359 - 404)
12
A Dynamic Programming Model of Retirement Behavior
John Rust
12.1
Introduction
This paper derives a model of the retirement behavior of older male workers from the solution to a stochastic dynamic programming problem. The worker's objective is to maximize expected discounted utility over his remaining lifetime. At each time period t the worker chooses control variables (ct,dt) where ct denotes the level of consumption expenditures and dt denotes the decision whether to work full-time, part-time, or to exit the labor force. The model accounts for the sequential nature of the retirement decision problem and the role of expectations of the uncertain future values of state variables (xt) such as the worker's future lifespan, health status, marital or family status, employment status, and earnings from employment, assets, Social Security retirement, disability, and Medicare payments. Given specific assumptions about workers' preferences and expectations, the model generates a predicted stochastic process for the variables {ct,dt,xt}. This paper, however, focuses on the inverse or "revealed preference" problem: given data on {ct,dt,xt}, how can one go backward and "uncover" the worker's underlying preferences and expectations? One can formalize the revealed preference problem as a problem of statistical inference. The null hypothesis is that the data {ct,dt,x} are
John P. Rust is an Associate Professor of Economics at the
Volume Title: The Economics of Aging Volume Author/Editor: David A. Wise, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-90295-1 Volume URL: http://www.nber.org/books/wise89-1 Conference Date: March 19-22, 1987 Publication Date: 1989
Chapter Title: A Dynamic Programming Model of Retirement Behavior Chapter Author: John P. Rust Chapter URL: http://www.nber.org/chapters/c11588 Chapter pages in book: (p. 359 - 404)
12
A Dynamic Programming Model of Retirement Behavior
John Rust
12.1
Introduction
This paper derives a model of the retirement behavior of older male workers from the solution to a stochastic dynamic programming problem. The worker's objective is to maximize expected discounted utility over his remaining lifetime. At each time period t the worker chooses control variables (ct,dt) where ct denotes the level of consumption expenditures and dt denotes the decision whether to work full-time, part-time, or to exit the labor force. The model accounts for the sequential nature of the retirement decision problem and the role of expectations of the uncertain future values of state variables (xt) such as the worker's future lifespan, health status, marital or family status, employment status, and earnings from employment, assets, Social Security retirement, disability, and Medicare payments. Given specific assumptions about workers' preferences and expectations, the model generates a predicted stochastic process for the variables {ct,dt,xt}. This paper, however, focuses on the inverse or "revealed preference" problem: given data on {ct,dt,xt}, how can one go backward and "uncover" the worker's underlying preferences and expectations? One can formalize the revealed preference problem as a problem of statistical inference. The null hypothesis is that the data {ct,dt,x} are
John P. Rust is an Associate Professor of Economics at the