Overlapping-Generations Economies under Uncertainty: Dynamic Inefficiency/Efficiency with Multiple Assets and no Labour

Martin Hellwig

No 2023_04, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: The paper gives conditions for efficiency and inefficiency of equilibrium allocations in an overlapping-generations model with a constant rate of population growth and with multiple assets, but without labour. Optimal portfolio choice implies that, for any period and history up to that period, the conditional certainty equivalents of the one-period-ahead marginal rates of return must be the same for all assets that are held in positive amounts. The efficiency or inefficiency of equilibrium allocations depends on whether this common conditional certainty equivalent of returns on assets is larger or smaller than the population growth rate. If the growth rate is uncertain, the standard of comparison is the certainty equivalent of the population growth rate when interpreted as a marginal rate of return on an asset.

Keywords: Dynamic Inefficiency; overlapping-generations models; First Welfare Theorem; certainty-equivalents criterion (search for similar items in EconPapers)
JEL-codes: D15 D61 E21 E22 E62 H30 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-dge, nep-gro and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2023_04

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