A characterization of inefficiency in stochastic overlapping generations economies

Bloise, Gaetano;Calciano, Filippo Luca
(2007) , 25 pages

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Authors
  • Bloise, GaetanoUniversity of Rome III
    Author
  • Calciano, Filippo LucaUniversité catholique de Louvain
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Abstract
In this paper, we provide a characterization of interim inefficiency in stochastic economies of overlapping generations under possibly sequentially incomplete markets. With respect to the established body of results in the literature, we remove the hypothesis of two-period horizons, by considering longer, though uniformly bounded, horizons for generations. The characterization exploits a suitably Modified Cass Criterion, grounded on the long-run behavior of compounded safe interest rates and independent of the length of horizons of generations. Thus, the hypothesis of two-period horizons is purely heuristic in establishing a criterion for inefficiency. In addition, for sequentially incomplete markets, we adopt a suitable notion of unambiguous inefficiency, separating the inefficient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous inefficiency reduces to inefficiency when markets are sequentially complete.
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  • Institution iconUCLouvainEURE/CORE - Center for operations research and econometrics

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Bloise, G., & Calciano, F. L. (2007). A characterization of inefficiency in stochastic overlapping generations economies (CORE Discussion Papers 2007/93). https://hdl.handle.net/2078.5/251403