Showing papers on "Overlapping generations model published in 1978"

Samuelson, population and intergenerational transfers*

Abstract: In the standard neoclassical model of Solow [12], rapid population growth is harmful to economic welfare even under the relatively benign conditions of inexhaustible resources and constant returns in production. The argument is simple: an increase in the population growth rate calls for greater investment to maintain the level of capital per head and this diverts resources from consumption and capital deepening. The smaller the population growth rate the better. A quite different conclusion, however, follows from the familiar consumptionloan model of Samnuelson [10]. Here, in a world of overlapping generations, older people are more comfortably supported in old age by having many children. The larger the growth rate the better for per capita lifetime welfare. Recently, in a model that merges both neoclassical and consumption-loan assumptions, Samuelson [11] comes upon an intermediate position in which an increase in population growth influences welfare more positively than it would under the Solow mechanism alone.2 In fact, under plausible assumptions, the optimal growth rate may well exceed currently observed rates.3 Demographic policies are often justified by pointing to their economic implications. Samuelson's findings are therefore important and the issue deserves closer scrutiny. Let us ignore the Solow effect for the moment, and look more closely at the consumption-loan argument. Samuelson's analysis is embedded in a simple two-age model where the younger, working population supports the older, retired age group through "consumption" loans (transfers of consumption that will be repaid in turn by the next generation). If a sustained increase in population growth takes place, the proportion of younger, productive people expands and the old, as a result, receive higher consumption transfers - a bonus, in effect, from population growth. As long as the higher growth rate persists, this arrangement repeats itself every generation: everyone

The Capital Stock Modified Competitive Equilibrium

Abstract: : The model suggested here, which follows the idea of a 'salvage value' for left over stock, used in dynamic programming, fails to capture some of the basic aspects of a multigenerational economy. We would like to consider the implications of an overlap such as is shown in Figure 1a where several generations whose lives overlap each other have to take care of the young and the old. Setting aside the extra problems posed by such a model we may regard our treatment as covering the case with successive but not overlapping generations. When one dies, the next is born and begins life with the capital stock left behind. There are several different ways we can explain the transfer of capital stock to successive generations. We may consider interlinked utility functions, 'love or altruism'; the external imposition of law or the design of a self-policing noncooperative game. The example presented in this paper is closest to the latter two approaches and is a direct extension of the type of models constructed previously by Shubik, Shapley and Shubik and Dubey and Shubik.

On a Monetary Equilibrium in a Generation Overlapping Economy

Abstract: In 1958 Samuelson considered an economy with overlapping generations and argued that some financial intermediary (or introduction of money) is essential to achieve an efficient allocation The results in his paper have been extended and criticized by various authors (eg, Cass-Yaari [1966, 1967], Diamond [1965], Gale [1973]) Recently, the same idea was brought into slightly different framework: a general equilibrium approach to an economy with fiat money Hayashi, in his recent paper [1976], argues that in some special class of economies there exists a monetary equilibrium (an equilibrium with positive price of money) if we consider an infinite horizon economy This result is remarkable, although intuitively straightforward, since it is impossible to obtain this equilibrium result in a finite horizon economy without some artificial money absorbing scheme (e g, Starr [1974], Kurz [1974], Heller [1974], Okuno [1976]) In an infinite horizon economy, any consumer can pass money to another consumer, while there must be some consumer who must end with money holding in a finite economy Yet, the existence of a monetary equilibrium is not as simple as the previous sentence may suggest, for all other consumers may refuse to accept money if they do not wish to hold it Hayashi's contribution is important in that he characterizes an economy where such incentives for trades of money exist However, his model is restricted in two ways First, he considers an economy where the timing of sales and purchases is exogenously determined for all individuals This enables him to consider a group of buyers and a group of sellers at each moment A seller at some instant would become a buyer in the next moment and then leave the market A consumer's preference is defined over consumption for these two periods (when he is a seller and when he is a buyer) As Hayashi himself observed, one of the most important problems in monetary theory is the existence of idle balances It would certainly be more interesting to consider an economy where the decision to enter the market and therefore the decision of idle balances are also endogenous Secondly, all of the previous works on consumption loan models (including Hayashi's) deal essentially with a stationary or balanced growth economy One