What is it about?
Economists have mainly focused on human capital accumulation rather than on the causes and consequences of human capital depreciation in late adulthood. To investigate how human capital depreciates over the life cycle, we examine how a newly introduced pension program, the National Rural Pension Scheme, affects cognitive performance in rural China. Retirement plans typically offer benefits that guarantee participants a certain level of income security in old age. Nevertheless, we find clear evidence of adverse effects on cognitive performance among NRPS participants. Specifically, we find that the provision of pension benefits negatively impacts immediate recall, delayed recall, and total word recall for program participants. This finding is significant, as lower performance on delayed recall memory measures has been a highly accurate detector of dementia among senior individuals.
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Why is it important?
Historically, the economics literature has primarily focused on human capital formation and considerably less on the causes and consequences of human capital depreciation, including cognitive decline. However, recent neuropsychological evidence suggests that the adult brain is malleable and open to enhancement even in late adulthood. Cognitive aging is a complex phenomenon, and its economic and policy causes are not well understood. In this paper, we analyze the effects of a pension program on cognitive performance in old age. Studying how human capital depreciates over the life cycle has powerful economic consequences. At the micro-level, cognitive functioning is crucial for decision-making. Elderly individuals make complex financial, health, and long-term care decisions, with significant economic implications. Given the lack of intermediary market institutions in rural areas to aid with financial decisions connected to income security or health care provision, examining the impact on the cognition of the elderly population in a country like China may be especially crucial. Understanding the causes of cognitive decline is also crucial for policy, as the relationship between cognitive aging and productivity affects long-term economic growth.
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This page is a summary of: Do pension benefits accelerate cognitive decline in late adulthood? Evidence from rural China, Journal of Economic Behavior & Organization, January 2023, Elsevier, DOI: 10.1016/j.jebo.2022.11.025.
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