Parental altruism, life expectancy and dynamically inefficient equilibria
This paper presents a continuous time overlapping-generation (OLG) model which generalizes the Blanchard-Buiter-Weil model and clarifies the relationships between dynastic previous termaltruismnext term, the length of planning horizons, and dynamic inefficiency. Our main innovation relies on the introduction of previous termparentalnext termprevious termaltruismnext term, whose intensity is variable. We first show that previous termparentalnext termprevious termaltruism 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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