The first seminar @IFMR

It’s a general perception that time flies but here it feels like time has stagnated. Our days are so much action packed that days feel like weeks and weeks feel like months. Its just a week since we are here and already I have been witnessing the global links of IFMR development centres. Almost everyday we witness someone from some other country over here for research activities having dinner with us at cafeteria. We had a Dr Ananth Seshadri, Chair Professor, Dept of Economics, University of Wisconsin - Madison, giving us a seminar on whether Americans are saving "Optimally" for retirement.

In his work, he examined the degree to which US households are optimally preparing for retirement by constructing a stochastic life cycle model that captured the key features of a household’s consumption decisions. The model incorporated many behavioral features shown by prior work to affect consumption, including precautionary savings and buffer stock behavior, government, end-of life uncertainty and medical shocks, and a stylized, time-varying progressive income tax. Households in the model formed realistic expectations about earnings; about social security benefits, which depend on lifetime earnings; and about pension benefits, which depend on earnings in the final year of work. Assessing the adequacy or optimality of wealth accumulation is difficult since it requires some standard against which to measure observed behavior. So, he incorporated detailed data from the Health and Retirement Study (HRS) on family structure and age of retirement (treating both as exogenous and known from the beginning of working life) in calculating optimal life cycle consumption profiles. As a conclusion we found strikingly little evidence that American households have under saved. We also found it striking how much of the variation in observed wealth accumulation can be explained by the life cycle model.

Few of the key arguments were that I found interesting were that the rich usually save a lot because they fear they will live longer and consequently face more medical expenses whereas the lower economic sections of the society save less because they think they have the US Social Security to fall back on. The crux of the seminar could be summed up as 84% of the households in USA meet their optimal wealth targets not because they explicity opt to but due to the fact that they have enough government measures in place like social security etc.

The next seminar is on 27th July by Dr. Vish Krishnan, Sheryl and Harvey White Endowed Chair, University of California, San Diego's Rady School of Management. The seminar is on Investments in R&D, Information Technology, and Firm Performance. Although the seminar looks pretty interesting, I am not sure if I would be able to attend it since it would clash with my classes.