Two-sided altruism, Lindahl Equilibrium, and Pareto Optimality in Overlapping Generations Models

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Two-sided altruism, Lindahl Equilibrium, and Pareto Optimality in Overlapping Generations Models

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Lakshmi K. Raut (The University of Hawaii-Manoa)

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Lakshmi Raut

Abstract

The paper extends the Samuelsonian overlapping generations framework to encompass a variety of altruistic preferences, recasting it into a Lindahl equilibrium framework. It has been shown that altruism towards parents provides an alternative answer to the basic question of capital theory as to why interest rates are positive; the Lindahl equilibrium obeys the First and the Second Welfare theorems with respect to the Malinvaud optimality criterion but not the Pareto optimality criterion. A complete characterization of Pareto optimal allocations is provided using Lindahl equilibrium prices. It is shown that a sufficiently strong altruism towards parents can change a Pareto inefficient Samuelsonian economy with negative interest rate to an efficient classical economy with positive interest rate. Based on Sen's meta ranking concept, the paper proposes an ethical principle to supplement the equilibrium theory for guiding agents in their choice of the degree of altruism towards their parents.

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 9604001.

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Length: 17 pages
Date of creation: 04 Apr 1996
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Handle: RePEc:wpa:wuwpge:9604001

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Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D62 - Microeconomics - - Welfare Economics - - - Externalities
D64 - Microeconomics - - Welfare Economics - - - Altruism
D9 - Microeconomics - - Intertemporal Choice and Growth

This paper has been announced in the following NEP Reports:

NEP-ALL-1998-10-02 (All new papers)
NEP-MIC-1998-10-02 (Microeconomics)
NEP-PUB-1998-10-02 (Public Finance)

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Lakshmi K. Raut, 1996. "Subgame perfect manipulation of children by overlapping generations of agents with two-sided altruism and endogenous fertility," Labor and Demography 9604003, EconWPA. [Downloadable!]

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