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Parental altruism, life expectancy and dynamically inefficient equilibria

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  • D'ALBIS Hippolyte

    (LERNA, TSE)

  • DECREUSE Bruno

Abstract

Macrodynamic models with finite lifetime and selfish individuals may feature (dynamically) inefficient equilibria, while models with infinite lifetime and altruistic individuals cannot. However, savings motives increase with parental altruism and lifetime expectancy, thereby favoring overaccumulation. This paper presents a continuous time OLG model which generalizes the Blanchard-Buiter-Weil model and allows to clarify the relationships between dynastic altruism, the length of planning horizons, and dynamic (in)efficiency. Our main innovation relies on the introduction of parental altruism, whose intensity is variable. We reach three main conclusions. First, we show that parental altruism and life expectancy do favor overaccumulation. Second, we explain why the Ramsey model only displays dynamic efficiency.A necessary condition for inefficiency actually implies the nonexistence of a dynamic competitive equilibrium. Third, theoretical results are illustrated by a parameterization from US data. Our numerical exercises suggest that the US economy is dynamically efficient, mainly because life expectancy is sufficiently short.

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 07.10.231.

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Date of creation: Aug 2007
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Handle: RePEc:ler:wpaper:07.10.231

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  1. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(2), pages 223-47, April.
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  13. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  14. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  15. Okuno, Masahiro & Zilcha, Itzhak, 1980. "On the Efficiency of a Competitive Equilibrium in Infinite Horizon Monetary Economies," Review of Economic Studies, Wiley Blackwell, vol. 47(4), pages 797-807, July.
  16. Galor, Oded & Ryder, Harl E., 1991. "Dynamic efficiency of steady-state equilibria in an overlapping-generations model with productive capital," Economics Letters, Elsevier, vol. 35(4), pages 385-390, April.
  17. Edmond S. Phelps, 1964. "Second Essay on the Golden Rule of Accumulation," Cowles Foundation Discussion Papers 173, Cowles Foundation for Research in Economics, Yale University.
  18. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(391), pages 279-93, June.
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Cited by:
  1. Hippolyte D'albis & Emmanuelle Augeraud-Véron, 2011. "Continuous-Time Overlapping Generations Models," Working Papers 246051, Institut National de la Recherche Agronomique, France.
  2. PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The public economics of increasing longevity," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2012005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. repec:hal:wpaper:halshs-00676492 is not listed on IDEAS

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