Pension Eligibility Rules and the Local Causal Effect of Retirement on Cognitive Functioning

Abstract

We present a nonparametric bounds analysis of the local average treatment effect (LATE) of retirement on cognitive functioning. Partial identification methods are used to obtain identification regions for LATE and empirically assess the extent to which the critical exclusion restriction is satisfied. We find that retirement can lead to, at most, a drop of around 0.8 correct answer in a 20-question memory task. Importantly, we find strong evidence against the universal validity of pension eligibility criteria as sources of valid instrumental variables for retirement.