Buyout Package Bingo: A Reason to Choose More Work for Same Pay?

An example of irrationality? A colleague at another university was offered a buy-out package: a full year’s pay if he would resign/retire at the end of the current semester. At the same time, his school also offered a phased retirement deal: two years at half-pay, with half a usual teaching load.

This economist chose to take the phased retirement, thus choosing the same pay, but teaching four courses over two years instead of no teaching. I think he’s crazy; but I think you can write down a utility function that is consistent with his behavior and violates none of our assumptions about preferences.

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  1. Rusty says:

    Retirement is boring and a full work load is too stressful. Why not have something in between?

    I would also ask what the employer gets from this arrangement. Is the part-time worker more productive since he is happier and has more free time, or is he less productive since he is less invested in the firm?

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  2. Bob says:

    Seems smart to me. By staying employed his pension conti8nues to grow, If he is 10 1/2 or older, staying employed means delaying the RMDs from university linked retirements accounts. These two factors more than make up for the reduced salary. And he stays involved. Good thinking, I’d say,

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