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On optimality in intergenerational risk sharing

Author

Listed:
  • Gabrielle Demange

    (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

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 examine conditions under which introducing a pay-as-you-go system would not lead to any Pareto improvement upon an equilibrium.

Suggested Citation

  • Gabrielle Demange, 2001. "On optimality in intergenerational risk sharing," Post-Print halshs-00581414, HAL.
  • Handle: RePEc:hal:journl:halshs-00581414
    DOI: 10.1007/s001990100199
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00581414
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    Keywords

    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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