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Overlapping Generations: the First Jubilee

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  • Philippe Weil

    (Département d'économie)

Abstract

Paul Samuelson's (1958) overlapping generations model has turned 50. Seldom has so simple a model been so influential. The paper, in spite of its ripe age, still elicits wonder. Starting from the uncontroversial observation that “we live in a world where new generations are always coming along” Samuelson built a model that violates the credo of the first fundamental welfare theorem with which we still inculcate undergraduates 50 years later. According to Samuelson, all is not necessarily well in the best of market economies: with overlapping generations, even absent the usual suspects such as distortions and market failures, a competitive equilibrium need not be Pareto efficient. Worst of all, this failure of the first welfare theorem in an overlapping generations model occurs in a framework that is, in many ways, more plausible and realistic than the world of agents living synchronous and finite existences in which the theorem is usually proved. Like Mona Lisa's enigmatic smile, the mysterious welfare properties of the overlapping generations model are, to a significant extent, responsible for its popularity—along with the many economic issues it has illuminated in the last half-century. I take it as my brief in this celebratory paper to provide, after a short exposition of the main results of the overlapping generations model under certainty, an explanation of why the welfare properties of the overlapping generations model differ so much from the canonical Arrow–Debreu framework and to review, in a deliberately nonencyclopedic mode, a few striking applications and extensions of Samuelson's deceptively straightforward model.

Suggested Citation

  • Philippe Weil, 2008. "Overlapping Generations: the First Jubilee," Sciences Po publications info:hdl:2441/8712, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/8712
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    Cited by:

    1. Bouton, Laurent & Lizzeri, Alessandro & Persico, Nicola, 2016. "The Political Economy of Debt and Entitlements," CEPR Discussion Papers 11459, C.E.P.R. Discussion Papers.
    2. David Miles & Jochen Schanz, 2013. "The Relevance or Otherwise of the Central Bank's Balance Sheet," NBER Chapters,in: NBER International Seminar on Macroeconomics 2013, pages 103-116 National Bureau of Economic Research, Inc.
    3. Hippolyte d’ALBIS & Dalal MOOSA, 2015. "Generational Economics and the National Transfer Accounts," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(4), pages 409-441, December.
    4. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2011. "Fertility, human capital accumulation, and the pension system," Journal of Public Economics, Elsevier, vol. 95(11), pages 1272-1279.
    5. Richard Evans & Kerk Phillips, 2014. "OLG Life Cycle Model Transition Paths: Alternate Model Forecast Method," Computational Economics, Springer;Society for Computational Economics, vol. 43(1), pages 105-131, January.
    6. Schmidt, Torsten & Vosen, Simeon, 2013. "Demographic change and the labour share of income," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 357-378.
    7. Thibault, Emmanuel, 2016. "Demonstration effect and dynamic efficiency," Economics Letters, Elsevier, vol. 147(C), pages 42-45.
    8. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2013. "The macroeconomics of TANSTAAFL," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 76-85.
    9. Voosholz, Frauke, 2013. "Inter-generational distribution of resources in a model of economic growth: Taking the land vs. food trade-off into account," CAWM Discussion Papers 70, University of Münster, Center of Applied Economic Research Münster (CAWM).
    10. Feigenbaum, James & Caliendo, Frank N. & Gahramanov, Emin, 2009. "Optimal irrational behavior," Economics Series eco_2009_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    11. Xavier Timbeau, 2011. "Solidarité intergénérationnelle et dette publique," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 191-212.
    12. Mauri Kotamäki, 2013. "The Pension Scheme Need Not Be Pay-As-You-Go: An Overlapping Generations Approach," Finnish Economic Papers, Finnish Economic Association, vol. 26(2), pages 56-71, Autumn.
    13. Kevin Luo & Tomoko Kinugasa & Kai Kajitani, 2018. "Dynamic efficiency in world economy," Discussion Papers 1801, Graduate School of Economics, Kobe University.
    14. Feigenbaum, James & Caliendo, Frank N. & Gahramanov, Emin, 2011. "Optimal irrational behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 285-303, March.
    15. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    16. Spahn, Peter, 2016. "Population growth, saving, interest rates and stagnation: Discussing the Eggertsson-Mehrotra model," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2016, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    17. Miles, David & Schanz, Jochen, 2014. "Should central banks provide reserves via repos or outright bond purchases?," CEPR Discussion Papers 10229, C.E.P.R. Discussion Papers.
    18. Luciano Fanti, 2012. "PAYG pensions and fertility drop: some (pleasant) arithmetic," Discussion Papers 2012/147, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    19. Tim Worrall & Alessia Russo & Francesco Lancia, 2017. "Sustainable Intergenerational Insurance," 2017 Meeting Papers 319, Society for Economic Dynamics.
    20. Obstfeld, Maurice & Rogoff, Kenneth, 2017. "Revisiting Speculative Hyperinflations in Monetary Models," CEPR Discussion Papers 12051, C.E.P.R. Discussion Papers.
    21. Hans Fehr, 2009. "Computable Stochastic Equilibrium Models and Their Use in Pension- and Ageing Research," De Economist, Springer, vol. 157(4), pages 359-416, December.

    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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