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Fair Accumulation under Risky Lifetime

  • Gregory Ponthiere

Individuals save for their old days, but not all of them enjoy the old age. This paper characterizes the optimal capital accumulation in a two-period OLG model where lifetime is risky and varies across individuals. We compare two long-run social optima: (1) the average utilitarian optimum, where steady-state average welfare is maximized; (2) the egalitarian optimum, where the welfare of the worst-off at the steady-state is maximized. It is shown that, under plausible conditions, the egalitarian optimum involves a higher capital and a lower fertility than the utilitarian optimum. Those inequalities hold also in a second-best framework where survival conditions are exogenously linked to the capital level.

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File URL: http://hdl.handle.net/10.1111/sjpe.12008
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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 60 (2013)
Issue (Month): 2 (05)
Pages: 210-230

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Handle: RePEc:bla:scotjp:v:60:y:2013:i:2:p:210-230
DOI: sjpe.12008
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0036-9292

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  1. Shankha Chakraborty, 2002. "Endogenous Lifetime and Economic Growth," University of Oregon Economics Department Working Papers 2002-03, University of Oregon Economics Department, revised 26 Jan 2002.
  2. Hammond, Peter J, 1981. "Ex-ante and Ex-post Welfare Optimality under Uncertainty," Economica, London School of Economics and Political Science, vol. 48(191), pages 235-50, August.
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