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Pensions, the Option Value of Work, and Retirement
Abstract
The paper develops a model of retirement based on the option value of continuing to work.Continuing to work maintains the option of retiring on more advantageous terms later.The model is used to estimate the effects on retirement of firm pension plan provisions.Typical defined benefit pension plans in the United States provide very substantial incentives to remain with the firm until some age, often the early retirement age, and then a strong incentive to leave the firm thereafter.(This may be a major reason for the rapidly declining labor force participation rates of older workers in the United States.)The model fits firm retirement data very well; it captures very closely the sharp discontinuous jumps in retirement rates at specific ages.The model is used to simulate the effect on retirement of potential changes in pension plan provisions.Increasing the age of early retirement from 55 to 60, for example, would reduce firm departure rates between ages 50 and 59 by almost forty percent.
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Citations
Cited by
Pensions, The Option Value of Work, and Retirement
Stock, J., & Wise, D. (1988) · National Bureau of Economic Research · doi:10.3386/w2686 · Cited by 555
Self-citationJob Loss and Employment Patterns of Older Workers
Chan, S., & Huff Stevens, A. (2001) · Journal of Labor Economics · doi:10.1086/319568 · Cited by 441
Pension Incentives and the Pattern of Early Retirement
Blundell, R., Meghir, C., & Smith, S. (2002) · The Economic Journal · doi:10.1111/1468-0297.00031 · Cited by 190
What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making
Chan, S., & Stevens, A. H. (2008) · Review of Economics and Statistics · doi:10.1162/rest.90.2.253 · Cited by 68
Health, longevity and retirement reform
Laun, T., Markussen, S., Vigtel, T. C., & Wallenius, J. (2019) · Journal of Economic Dynamics and Control · doi:10.1016/j.jedc.2019.03.004 · Cited by 29
Metadata
- Authors
- Stock, J. H., & Wise, D. A.
- Venue
- Econometrica
- Publisher
- JSTOR
- Published
- 1990-09
- Volume
- 58
- Issue
- 5
- Pages
- 1151
- ISSN
- 0012-9682 (ISSN-L)
- OpenAlex
- W2062441457
- Cited by
- 594
- References
- 0
- FWCI
- 5.47
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Pensions, the Option Value of Work, and Retirement. https://app.cochat.ai/papers/10.2307/2938304
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- Stock, J. H., & Wise, D. A. (1990). Pensions, the Option Value of Work, and Retirement. Econometrica. https://doi.org/10.2307/2938304
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
