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# Active Intermediation in a Monetary Overlapping Generations Economy''

## Author

Listed:
• Mark Pingle

(Department of Economics, University of Nevada, Reno, NV 89557)

• Leigh Tesfatsion

(Department of Economics, Iowa State University, Ames, IA 50011-1070)

## Abstract

It is now widely believed that government intervention is essential to ensure Pareto efficiency in the standard overlapping generations economy with nonaltruistic agents. This paper argues that the normal profit-seeking activities of {\it private intermediaries\/}---missing from the standard overlapping generations economy---would tend to eliminate the need for such government intervention. A private earnings-driven corporate intermediary is introduced into a standard monetary overlapping generations economy which, in the absence of the intermediary, generates Pareto inefficient equilibria. The intermediary issues unsecured corporate debt and maximizes its market value in direct accordance with the interests of its successive shareholders. The significant impact of private intermediation is demonstrated by establishing that all equilibria for the resulting Corporate Economy'' are Pareto efficient. Dynamic properties of equilibrium paths are also determined. It is shown, for example, that endogenous cyclic equilibria are possible for the Corporate Economy in the absence of gross substitutability.

## Suggested Citation

• Mark Pingle & Leigh Tesfatsion, 1993. "Active Intermediation in a Monetary Overlapping Generations Economy''," Macroeconomics 9312001, EconWPA, revised 04 Dec 1993.
• Handle: RePEc:wpa:wuwpma:9312001
Note: 32 Pages of Text, Plus a Ten Page Appendix and Two Figures, all in ONE LaTeX file
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File URL: http://econwpa.repec.org/eps/mac/papers/9312/9312001.tex

File URL: http://econwpa.repec.org/eps/mac/papers/9312/9312001.pdf

File URL: http://econwpa.repec.org/eps/mac/papers/9312/9312001.ps.gz

## References listed on IDEAS

as
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Full references (including those not matched with items on IDEAS)

## Citations

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Cited by:

1. Pingle, Mark & Tesfatsion, Leigh, 1998. "Active Intermediation In Overlapping Generations Economies With Production And Unsecured Debt," Macroeconomic Dynamics, Cambridge University Press, vol. 2(02), pages 183-212, June.
2. Tesfatsion, Leigh, 2006. "Agent-Based Computational Modeling and Macroeconomics," ISU General Staff Papers 200601010800001585, Iowa State University, Department of Economics.

### JEL classification:

• E - Macroeconomics and Monetary Economics

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