STUDY | 
Finance
 BEHAVIOR CHANGE

Active Vs. Passive Decisions and Crowdout in Retirement Savings Accounts.

Chetty et al. (2012)
Raj Chetty
Summary by 
Mark Egan

The authors used 45 million observations from Denmark to see whether retirement savings policies – such as tax subsidies or employer-provided pension plans – increase total saving for retirement or simply induce shifting across accounts. They find that automatic contributions are more effective at increasing savings rates than price subsidies for three reasons: (1) subsidies induce relatively few individuals to respond, (2) they generate substantial crowd-out conditional on response, and (3) they do not influence the savings behavior of passive individuals, who are least prepared for retirement.