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Two-sided altruism, Lindahl Equilibrium, and Pareto Optimality in Overlapping Generations Models

  • Lakshmi K. Raut

    (The University of Hawaii-Manoa)

The paper extends the Samuelsonian overlapping generations framework to encompass a variety of altruistic preferences, recasting it into a Lindahl equilibrium framework. It has been shown that altruism towards parents provides an alternative answer to the basic question of capital theory as to why interest rates are positive; the Lindahl equilibrium obeys the First and the Second Welfare theorems with respect to the Malinvaud optimality criterion but not the Pareto optimality criterion. A complete characterization of Pareto optimal allocations is provided using Lindahl equilibrium prices. It is shown that a sufficiently strong altruism towards parents can change a Pareto inefficient Samuelsonian economy with negative interest rate to an efficient classical economy with positive interest rate. Based on Sen's meta ranking concept, the paper proposes an ethical principle to supplement the equilibrium theory for guiding agents in their choice of the degree of altruism towards their parents.

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 9604001.

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Length: 17 pages
Date of creation: 04 Apr 1996
Date of revision:
Handle: RePEc:wpa:wuwpge:9604001
Note: Type of Document - Postscript; prepared on IBM PC - PC-TEX; to print on PostScript; pages: 17; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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