Asset Bubbles, Pay-As-You-Go Systems and Dynamic Efficiency
AbstractThis paper deals with the role of bubbles, having the same meaning as Ponzi games, for implementing efficient growth paths in a closed economy overlapping generations model. It is shown that the well-known arbitrage condition for bubbles, namely that they must yield the same return in equilibrium as real assets, is generically neither necessary nor sufficient for a Pareto-improvement compared to a perfect-foresight equilibrium without bubbles. A consequence of this fact is that bubbles, or Ponzi games, are not Pareto-improving generically, and therfore, it can be irrational for agents to be on the demand side on the market for bubbles, although a bubbly equilibrium could exist.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 425.
Length: 18 pages
Date of creation: Dec 1993
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de
Bubbles; Dynamic Effiency; Ponzi Games; Pay-As-You-Go Systems;
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