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Dynamic Efficiency in the Two-Sector Overlapping Generations Model


  • Cremers, Emily


This paper examines dynamic efficiency in the context of a two-sector overlappinggenerations model. First, conditions for dynamic efficiency in a centrally planned economy arederived. Then, in a competitive environment, the implications of dynamic (in)efficiency for thesteady state relative price and steady state welfare are demonstrated. For the special case of alog-linear world, the golden rule savings rate is identified along with restrictions on parametersthat yield dynamically efficient steady states. The results are further demonstrated via awelfare analysis of a simple tax/subsidy scheme.

Suggested Citation

  • Cremers, Emily, 2006. "Dynamic Efficiency in the Two-Sector Overlapping Generations Model," Staff General Research Papers Archive 34856, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:34856

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    References listed on IDEAS

    1. Cremers, Emily T. & Sen, Partha, 2008. "The transfer paradox in a one-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1995-2012, June.
    2. Polemarchakis, H M, 1983. "On the Transer Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 749-760, October.
    3. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report 377, Federal Reserve Bank of Minneapolis.
    4. O. Galor & H. M. Polemarchakis, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 147-156.
    5. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-1386, November.
    6. Slobodan Djajic & Sajal Lahiri & Pascalis Raimondos-Moller, 1998. "The Transfer Problem and the Intertemporal Terms of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 427-436, May.
    7. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    8. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380.
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    Cited by:

    1. Igor Fedotenkov, 2014. "Optimal asymmetric taxation in a two-sector model with population ageing," Bank of Lithuania Working Paper Series 15, Bank of Lithuania.
    2. Wei-Bin Zhang, 2015. "A Portfolio Equilibrium Model of Gold and Capital in an Integrated Walrasian General Equilibrium and Neoclassical Growth Theory," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(12), pages 616-627, December.
    3. Drugeon, Jean-Pierre & Nourry, Carine & Venditti, Alain, 2010. "On efficiency and local uniqueness in two-sector OLG economies," Mathematical Social Sciences, Elsevier, vol. 59(1), pages 120-144, January.
    4. Zhang Wei-Bin, 2014. "Land Value and Rent Dynamics in an Integrated Walrasian General Equilibrium and Neoclassical Growth Theory," Scientific Annals of Economics and Business, De Gruyter Open, vol. 61(2), pages 235-258, December.
    5. Nourry, Carine & Venditti, Alain, 2011. "Local indeterminacy under dynamic efficiency in a two-sector overlapping generations economy," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 164-169, March.
    6. repec:beo:journl:v:62:y:2017:i:213:p:93-128 is not listed on IDEAS
    7. Wei-Bin ZHANG, 2015. "Tourism, Trade And Wealth Accumulation With Endogenous Income And Wealth Distribution Among Countries," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 4(1), pages 1-1, January.
    8. Zhang W.B., 2015. "Birth And Mortality Rates, Gender Division Of Labor, And Time Distribution In The Solow Growth Model," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 24(1), pages 121-134.
    9. Prof. Wei-Bin Zhang, 2015. "Economic Oscillations in a Multi-Country Growth Model with Free Trade and Tourism," Eurasian Business & Economics Journal, Eurasian Academy Of Sciences, vol. 2(2), pages 1-19, July.

    More about this item


    dynamic efficiency; overlapping generations model; Two-Sector;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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