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Abstract

The paper analyzes the intermediation role of government under the assumption that it has an advantage over the private sector in collecting uncollateralized loan payments. It isshown that a government loan program may improve the welfare of all generations (including the current old generation) if agents care about future generations in the time inconsistent manner originally proposed by Phelps and Pollak (1968). Numerical examples suggest that the welfare gains from intervention may be quite large and depends on the degree of altruism as defined by Phelps and Pollak. The welfare gains are large when agents are relatively �egoistic� because in this case the time inconsistency problem is more severe and there is more room for intervention.

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File URL: http://www.accessecon.com/pubs/VUECON/vu11-w08.pdf
File Function: First version, August 2011
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1108.

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Date of creation: Aug 2011
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Handle: RePEc:van:wpaper:1108

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Intermediation; Inconsistent Altruistic Behavior; Investment in Children; Government Loan Program;

Find related papers by JEL classification:

• E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
• E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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1. Aiyagari, S. Rao & Greenwood, Jeremy & Seshadri, Ananth, 2002. "Efficient Investment in Children," Journal of Economic Theory, Elsevier, vol. 102(2), pages 290-321, February.
   
   • S. Rao Aiyagari & Jeremy Greenwood & Anath Seshardi, 2001. "Efficient investment in children," Working Paper 0105, Federal Reserve Bank of Cleveland.
   • S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 1999. "Efficient investment in children," Discussion Paper / Institute for Empirical Macroeconomics 132, Federal Reserve Bank of Minneapolis.
   • S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 2001. "Efficient Investment in Children," RCER Working Papers 481, University of Rochester - Center for Economic Research (RCER).
2. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
   
   • 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..
3. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
   
   • Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
4. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.

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