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Equilibrium existence in an overlapping generations model with altruistic preferences

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  • S. Rao Aiyagari

Abstract

We prove the existence of a competitive equilibrium in an overlapping generations model in which each generation has a preference ordering over its own and its descendents’ consumptions. The model is one of pure exchange with many goods in each period and two period lived generations. The bequest from one generation to the next is required to be non-negative and is endogenous. In equilibrium, some sequences of agents of successive generations may be continually “linked” by positive bequests and act as infinitely lived agents. Other sequences of agents may not be so linked and therefore behave as sequences of finite lived agents. We give three examples which illustrate the following points: (i) multiple equilibria may exist some of which resemble those of standard overlapping generations models, whereas in others some sequences of agents behave as if infinitely lived, (ii) multiple steady states of the above two types may exist in which the latter are unstable and the former are stable, and (iii) if agents have preferences given by discounted sums of utilities with different discount rates, then not all sequences of generations can be continually linked and hence behave as infinitely lived agents.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 356.

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Date of creation: 1987
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Publication status: Published in Journal of Economic Theory (Vol 47, Num 1, February 1989, pp. 130-152)
Handle: RePEc:fip:fedmwp:356

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Cited by:
  1. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
  2. MICHEL, Ph. & PESTIEAU, P., . "Fiscal policy in a growth model with both altruistic and nonaltruistic agents," CORE Discussion Papers RP -1301, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Nourry, Carine & Venditti, Alain, 2001. "Determinacy of Equilibrium in an Overlapping Generations Model with Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 230-255, January.
  4. Óscar Arce & David López-Salido, 2011. "Housing Bubbles," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 212-41, January.
  5. DUTTA, Jayasri & MICHEL, Philippe, 1995. "The Distribution of Wealth with Imperfect Altruism," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1995058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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