A characterization of inefficiency in stochastic overlapping generations economies
AbstractIn this paper, we provide a characterization of interim inefficiency in stochastic economies of overlapping generations. With respect to the established body of results in the literature, we allow for sequentially incomplete markets and we remove the hypothesis of two-period horizons, by considering longer, though uniformly bounded, horizons for generations. The characterization exploits a suitably Modified Cass Criterion, based entirely on observable prices and independent of the length of the horizons of generations. For sequentially incomplete markets, we introduce a notion of unambiguous inefficiency, separating the inefficient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous inefficiency reduces to inefficiency when markets are sequentially complete. Furthermore, our analysis shows that the hypothesis of two-period horizons is purely heuristic in establishing a criterion for inefficiency.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 143 (2008)
Issue (Month): 1 (November)
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Web page: http://www.elsevier.com/locate/inca/622869
Stochastic overlapping generations economies Inefficiency Competitive prices Cass Criterion Social security Incomplete markets;
Other versions of this item:
- BLOISE, Gaetano & CALCIANO, Filippo L., 2007. "A characterization of inefficiency in stochastic overlapping generations economies," CORE Discussion Papers 2007093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bloise, Gaetano & Calciano, Filippo L., 2007. "A Characterization of Inefficiency in Stochastic Overlapping Generations Economies," MPRA Paper 8780, University Library of Munich, Germany.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
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