This 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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Publisher Info
Paper 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: Handle: RePEc:bon:bonsfa:425
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=517
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