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Intragenerational externalities and intergenerational transfers

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  • Kolmar, Martin
  • Meier, Volker

Abstract

In an environment with asymmetric information and intragenerational externalities, the implementation of a first-best efficient Clarke-Groves- Vickrey mechanism may not be feasible if it has to be self-financing. By using intergenerational transfers, the arising budget deficit can be covered in every generation only if the initial allocation is not dynamically efficient. While introducing a pay-as-you-go scheme without addressing the externality already yields a Pareto improvement, further welfare gains can be captured by using the additional resources to achieve a perfect internalization.

Suggested Citation

  • Kolmar, Martin & Meier, Volker, 2012. "Intragenerational externalities and intergenerational transfers," Munich Reprints in Economics 19480, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19480
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    2. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.

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