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Is There a General Criterion for Dynamic Efficiency?

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  • M. A. C. Martins
  • Joao Ricardo Faria
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    Abstract

    This paper analyses an overlapping generations model with absolute bequest motive. It is shown that the widely accepted criterion to verify dynamic efficiency does not apply to this case. In our model the social planner maximizes welfare by choosing a capital stock larger than the golden rule and a real rate of interest smaller than the rate of growth of the economy.

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    File URL: http://www.finance.uts.edu.au/research/wpapers/wp89.pdf
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    Bibliographic Info

    Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 89.

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    Date of creation: 01 Aug 1999
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    Handle: RePEc:uts:wpaper:89

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    Related research

    Keywords: dynamic efficiency; bequest motive; overlapping generations; capital accumulation;

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
    3. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    4. Araujo, Jorge Thompson & Martins, Marco A. C., 1999. "Economic growth with finite lifetimes," Economics Letters, Elsevier, vol. 62(3), pages 377-381, March.
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