On Optimality of Intergenerational Risk Sharing
This paper studies optimality in dynamic stochastic economies with finitely lived agents. In this set up, an agent's utility level depends on the date at which it is evaluated, and on the available information at that date. A family of Pareto optimality concepts may be defined accordingly, with two polar cases, interim and ex ante optimality. Sufficient or necessary conditions for an allocation to be optimal are first obtained, extending an approach developed in riskless OLG models. When applied to an equilibrium in an economy in which land is transacted and markets are sequentially complete, these conditions emphasize the importance of short run efficiency. If markets are incomplete, whereas the standard approach cannot be used, sufficient conditions for interim optimality are provided in two period lived overlapping generations economies. They extend the efficiency properties of an equilibrium with land and the well known Samuelson interest rate condition to a constrained set up.
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|Date of creation:||2000|
|Date of revision:|
|Publication status:||Published in Economic Theory, 2002, 20, pp. 1-27.|
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