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Parental altruism, life expectancy and dynamically inefficient equilibria

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  • d'Albis, Hippolyte
  • Decreuse, Bruno

Abstract

This paper presents a continuous time overlapping-generation (OLG) model which generalizes the Blanchard-Buiter-Weil model and clarifies the relationships between dynastic altruism, the length of planning horizons, and dynamic inefficiency. Our main innovation relies on the introduction of parental altruism, whose intensity is variable. We first show that parental altruism and life expectancy do favor overaccumulation. Second, we give a condition that explains why the Ramsey model may only display dynamic efficiency. These theoretical results are illustrated by a parameterization from US data. Our numerical exercises suggest that the US economy is dynamically efficient, mainly because of the shortness of life expectancy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 1897-1911

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:11:p:1897-1911

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Overlapping-generations models Productive capital Dynamic (in)efficiency Intergenerational altruism;

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  12. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
  13. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  14. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
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  16. Edmond S. Phelps, 1964. "Second Essay on the Golden Rule of Accumulation," Cowles Foundation Discussion Papers 173, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Hippolyte D'Albis & Emmanuelle Augeraud-Véron, 2011. "Continuous-Time Overlapping Generations Models," Post-Print hal-00424799, HAL.
  2. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española, IEF, vol. 200(1), pages 41-74, March.
  3. Pierre Pestieau & Grégory Ponthière, 2012. "The public economics of increasing longevity," Working Papers halshs-00676492, HAL.

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