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Trading Off Generations: Infinitely-Lived Agent Versus OLG

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Abstract

The prevailing literature discusses intergenerational trade-offs predominantly in infinitely-lived agent models despite the finite lifetime of individuals. We discuss these trade-offs in a continuous time OLG framework and relate the results to the infinitely-lived agent setting. We identify three shortcomings of the latter: First, underlying normative assumptions about social preferences cannot be deduced unambiguously. Second, the distribution among generations living at the same time cannot be captured. Third, the optimal solution may not be implementable in overlapping generations market economies. Regarding the recent debate on climate change, we conclude that it is indispensable to explicitly consider the generations' life cycles.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 10/128.

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Length: 50 pages
Date of creation: Mar 2010
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Handle: RePEc:eth:wpswif:10-128

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Keywords: climate change; discounting; infinitely-lived agents; intergenerational equity; overlapping generations; time preference;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Trading Off Generations: Infinitely-Lived Agent Versus OLG
    by Christian Zimmermann in NEP-DGE blog on 2010-06-07 02:25:03
  2. Trading Off Generations: Infinitely-Lived Agent Versus OLG
    by Christian Zimmermann in NEP-DGE blog on 2010-05-04 00:46:22
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Cited by:
  1. Habla, Wolfgang & Roeder, Kerstin, 2013. "Intergenerational aspects of ecotax reforms - An application to Germany," Munich Reprints in Economics, University of Munich, Department of Economics 20469, University of Munich, Department of Economics.
  2. Larry S. Karp, 2012. "Provision of a Public Good with Altruistic Overlapping Generations and Many Tribes," CESifo Working Paper Series 3895, CESifo Group Munich.
  3. Roeder, Kerstin & Habla, Wolfgang, 2012. "The Political Sustainability of Germany's Environmental Tax Rate," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62060, Verein für Socialpolitik / German Economic Association.

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