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

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  • Lakshmi K. Raut

    (The University of Hawaii-Manoa)

Abstract

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.

Suggested Citation

  • Lakshmi K. Raut, 1996. "Two-sided altruism, Lindahl Equilibrium, and Pareto Optimality in Overlapping Generations Models," GE, Growth, Math methods 9604001, EconWPA.
  • 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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    References listed on IDEAS

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    1. Wolfgang Leininger, 1986. "The Existence of Perfect Equilibria in a Model of Growth with Altruism between Generations," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 349-367.
    2. 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.
    3. 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..
    4. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
    5. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    7. Lane, John & Mitra, Tapan, 1981. "On Nash Equilibrium Programs of Capital Accumulation under Altruistic Preferences," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 309-331, June.
    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. Timothy J. Kehoe & David K. Levine & Andreu Mas-Colell & Michael Woodford, 1991. "Gross Substitutes in Large Square Economics," Levine's Working Paper Archive 2057, David K. Levine.
    10. Goldman, Steven Marc, 1978. "Gift equilibria and pareto optimality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 368-370, August.
    11. B. Douglas Bernheim & Debraj Ray, 1987. "Economic Growth with Intergenerational Altruism," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 227-243.
    12. Kehoe, Timothy J. & Levine, David K. & Mas-Colell, Andreu & Woodford, Michael, 1991. "Gross substitutability in large-square economies," Journal of Economic Theory, Elsevier, vol. 54(1), pages 1-25, June.
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    Cited by:

    1. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0519-3 is not listed on IDEAS
    2. Lakshmi K. Raut, 1996. "Subgame perfect manipulation of children by overlapping generations of agents with two-sided altruism and endogenous fertility," Labor and Demography 9604003, EconWPA.

    More about this item

    Keywords

    Altruism; Lindahl equilibrium; Overlapping generations model; Two-sided altruism;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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