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On optimality in intergenerational risk sharing


  • Gabrielle Demange

    () (DELTA, 48 Boulevard Jourdan, 75 014 Paris, FRANCE)


This paper defines and studies optimality in a dynamic stochastic economy with finitely lived agents, and investigates the optimality properties of an equilibrium with or without sequentially complete markets. Various Pareto optimality concepts are considered, including interim and ex ante optimality. We show that, at an equilibrium with a productive asset (land) and sequentially complete markets, the intervention of a government may be justified, but only to improve risk sharing between generations. If markets are incomplete, constrained interim optimality is investigated in two-period lived OLG economies. We extend the optimality properties of an equilibrium with land and give conditions under which introducing a pay-as-you-go system at an equilibrium would not lead to any Pareto improvement.

Suggested Citation

  • Gabrielle Demange, 2002. "On optimality in intergenerational risk sharing," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(1), pages 1-27.
  • Handle: RePEc:spr:joecth:v:20:y:2002:i:1:p:1-27 Note: Received: October 5, 1998; revised version: April 3, 2001

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    References listed on IDEAS

    1. Fleurbaey, Marc & Suzumura, Kotaro & Tadenuma, Koichi, 2005. "Arrovian aggregation in economic environments: how much should we know about indifference surfaces?," Journal of Economic Theory, Elsevier, vol. 124(1), pages 22-44, September.
    2. Sprumont, Yves & Zhou, Lin, 1999. "Pazner-Schmeidler rules in large societies," Journal of Mathematical Economics, Elsevier, vol. 31(3), pages 321-339, April.
    3. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    4. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
    5. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    6. Elisha A. Pazner & David Schmeidler, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 671-687.
    7. Moulin, H & Thomson, W, 1995. "Axiomatic Analysis of Resource Allocation," RCER Working Papers 400, University of Rochester - Center for Economic Research (RCER).
    8. Marc Fleurbaey & Maurice Salles & John Weymark, 2008. "Justice, Political Liberalism and Utilitarianism," Post-Print hal-00246415, HAL.
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    More about this item


    Overlapping generations; Incomplete markets; Optimality.;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions


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