Journal of the Korean Society for Industrial and Applied Mathematics

Korean Society for Industrial and Applied Mathematics (한국산업응용수학회)
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HOW TO PREPARE FOR RETIREMENT? OPTIMAL SAVING, LABOR SUPPLY, AND INVESTMENT STRATEGY

  • Koo, Bon Cheon (GRADUATE DEPARTMENT OF FINANCIAL ENGINEERING, AJOU UNIVERSITY) ;
  • Koo, Jisoo (COLLEGE OF BUSINESS ADMINISTRATION, AJOU UNIVERSITY) ;
  • Song, Hana (COLLEGE OF BUSINESS ADMINISTRATION, AJOU UNIVERSITY) ;
  • Yoon, Hyo-Bin (COLLEGE OF BUSINESS ADMINISTRATION, AJOU UNIVERSITY) ;
  • Kim, Min-Seok (COLLEGE OF BUSINESS ADMINISTRATION, AJOU UNIVERSITY)
  • Received : 2014.09.17
  • Accepted : 2014.10.02
  • Published : 2014.12.25
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Abstract

In this paper we study consumption-labor supply decision of an agent who prepares for retirement at a known time in the future. The agent is assumed to have a preference which is represented by the von Neumann-Morgenstern utility function in which the felicity function has constant relative risk aversion over the composite of consumption and leisure. The composite is obtained by the Cobb-Douglas function. A general problem has been studied by Bodie et al. (2004). We contribute to the literature by deriving the Slutsky equations and conducting comparative statics. In particular, we show that wealth effect can exhibit an interesting property depending upon the time until retirement, as the interest rate increases.

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References

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