A Note On The Characterization Of Inefficiency In Stochastic Overlapping Generations Economies
AbstractIn this paper, we provide a characterization of interim ine±ciency in stochastic economies of overlapping generations under possibly sequentially incomplete markets. With respect to the established body of results in the literature, we remove the hypothesis of two-period horizons, by considering longer, though uniformly bounded, horizons for generations. The characteri- zation exploits a suitably Modi¯ed Cass Criterion, grounded on the long-rung behavior of compounded safe interest rates and independent of the length of horizons of generations. Thus, the hypothesis of two-period horizons is purely heuristic in establishing a criterion for ine±ciency. In addition, for sequentially incomplete markets, we adopt a suitable notion of unambiguous ine±ciency, separating the ine±cient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous ine±ciency reduces to ine±ciency when markets are sequentially complete.
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Date of creation: Dec 2007
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Stochastic overlapping generations economies; ine±ciency; com-;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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