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Switching Costs and Competition in Retirement Investment

  • Fernando Luco
American Economic Journal: Microeconomics
vol. 11, no. 2, May 2019
(pp. 26-54)
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Abstract

How do different switching costs affect choices and competition in a private pension system? I answer this question in a setting in which variation in employment status allows me to identify two switching costs that jointly affect enrollees' decisions: the cost of evaluating financial information and the cost of the bureaucratic process that enrollees must navigate when switching. I use this variation to estimate the different switching costs and study their impact on competition among pension funds. I find that though eliminating all switching costs decreases equilibrium fees the most, eliminating either switching cost decreases fees significantly.

Citation

Luco, Fernando. 2019. "Switching Costs and Competition in Retirement Investment." American Economic Journal: Microeconomics, 11 (2): 26-54. DOI: 10.1257/mic.20160332

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
  • J26 Retirement; Retirement Policies
  • J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
  • O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
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