John Beshears , James J. Choi , Christopher Clayton , Christopher Harris , David Laibson , Brigitte C. Madrian
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Abstract
We study the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias with naive beliefs. The government chooses mandatory contributions to accounts, each with a different pre-retirement withdrawal penalty. Collected penalties are rebated lump sum. When households have homogeneous present bias, , the social optimum is well approximated by a single account with an early-withdrawal penalty of . When households have heterogeneous present bias, the social optimum is well approximated by a two-account system: (i) an account that is completely liquid and (ii) an account that is completely illiquid until retirement.
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The Journal of Financial Economics provides a specialized forum for the publication of research in the area of financial economics and the theory of the firm, placing primary emphasis on the highest quality analytical, empirical, and clinical contributions in the following major areas: capital markets, financial institutions, corporate finance, corporate governance, and the economics of organizations.
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