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Parental altruism, life expectancy and dynamically inefficient equilibria

  • D'ALBIS Hippolyte

    (LERNA, TSE)

  • DECREUSE Bruno

This paper presents a continuous time overlapping-generation (OLG) model which generalizes the Blanchard-Buiter-Weil model and clarifies the relationships between dynastic altruism, the length of planning horizons, and dynamic inefficiency. Our main innovation relies on the introduction of parental altruism, whose intensity is variable. We first show that parental altruism and life expectancy do favor overaccumulation. Second, we give a condition that explains why the Ramsey model may only display dynamic efficiency. These theoretical results are illustrated by a parameterization from US data. Our numerical exercises suggest that the US economy is dynamically efficient, mainly because of the shortness of life expectancy.

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File URL: http://www2.toulouse.inra.fr/lerna/travaux/cahiers2007/07.10.231.pdf
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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 07.10.231.

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Date of creation: Aug 2007
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Handle: RePEc:ler:wpaper:07.10.231
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  1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  2. Bullard, James & Russell, Steven, 1999. "An empirically plausible model of low real interest rates and unbacked government debt," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 477-508, December.
  3. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  4. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  5. Abel, Andrew B., 1989. "Birth, death and taxes," Journal of Public Economics, Elsevier, vol. 39(1), pages 1-15, June.
  6. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  7. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  8. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  9. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  10. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
  11. Saint-Paul, G., 1991. "Fiscal Policy In An Endogenous Growth Model," DELTA Working Papers 91-04, DELTA (Ecole normale supérieure).
  12. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  13. Edmond S. Phelps, 1964. "Second Essay on the Golden Rule of Accumulation," Cowles Foundation Discussion Papers 173, Cowles Foundation for Research in Economics, Yale University.
  14. repec:cup:cbooks:9780521806428 is not listed on IDEAS
  15. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  16. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  17. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-11, Sept.-Oct.
  18. Galor, Oded & Ryder, Harl E., 1991. "Dynamic efficiency of steady-state equilibria in an overlapping-generations model with productive capital," Economics Letters, Elsevier, vol. 35(4), pages 385-390, April.
  19. Okuno, Masahiro & Zilcha, Itzhak, 1980. "On the Efficiency of a Competitive Equilibrium in Infinite Horizon Monetary Economies," Review of Economic Studies, Wiley Blackwell, vol. 47(4), pages 797-807, July.
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