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Asset Bubbles, Pay-As-You-Go Systems and Dynamic Efficiency

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  • Günther Lang
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    Abstract

    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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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 425.

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    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 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Bubbles; Dynamic Effiency; Ponzi Games; Pay-As-You-Go Systems;

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