A Life-Cycle Model with Myopic Decision Making

Abstract

A dynamic model of individual consumption, saving and labor supply with obligatory pension insurance is considered. A distinctive feature of the model is a myopic approach to decision making, as the decision horizon is bounded to two periods: current period t and the next period t +1. An analytic solution of a two-period optimization problem is obtained. The model generates labor supply and income age-related curves which agree with empirical observations.