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Overlapping Generations, Intermediation, and the First Welfare Theorem


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  • Pingle, M.
  • Tesfatsion, Leigh S.


First Welfare Theorem fails to hold for standard pure exchange overlapping generations economies because no agent exploits the profit opportunities which can arise from mediating intertemporal trade. This paper modifies the standard economy by introducing an optimizing corporate intermediary which distributes net earnings back to consumer-shareholders. The Pareto inefficient no-trade state, which is a stationary equilibrium for the standard economy, cannot be an equilibrium for this modified "Brokerage Economy" because the intermediary perceives unbounded earnings opportunities. If the intermediary seeks to maximize the minimum dividend per share distributed over time, then there is a unique Pareto effecient stationary equilibrium for the Brokerage Economy.Annotated pointers to related work can be accessed at

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11185.

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Date of creation: 01 Nov 1991
Date of revision:
Publication status: Published in Journal of Economic Behavior and Organization, November 1991, vol. 15, pp. 325-345
Handle: RePEc:isu:genres:11185

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Cited by:
  1. Pingle, Mark & Tesfatsion, Leigh S., 1998. "Active Intermediation in Overlapping Generations Economies with Production and Unsecured Debt," Staff General Research Papers, Iowa State University, Department of Economics 1953, Iowa State University, Department of Economics.
  2. Pingle, Mark & Tesfatsion, Leigh S., 1998. "Active Intermediation in a Monetary Overlapping Generations Economy," Staff General Research Papers, Iowa State University, Department of Economics 1954, Iowa State University, Department of Economics.


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