Intergenerational Welfare Assessments

Sergi Barcons, Eduardo D‡vila and Andreas Schaab
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Sergi Barcons: Toulouse School of Economics
Eduardo D‡vila: Yale University
Andreas Schaab: University of California, Berkeley

No 2427, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies welfare assessments in economies with rich demographic structures. First, we show that perpetual consumption is the only unit that enables interpersonal comparisons in demographically disconnected economies, in which there is no date in which all individuals are concurrently alive. Second, we show that there exist feasible perturbations of Pareto efficient allocations in demographically disconnected economies that feature positive Kaldor Hicks efficiency gains. Third, we show how welfare gains from reallocating consumption can be separately attributed to an incomplete markets and a demographic component. We use our results to derive new insights in three workhorse intergenerational models: i) Samuelson (1958) two-date-life model, exploring the desirability of young-to-old transfers; ii) Diamond (1965) growth model with capital, exploring capital taxation and the question of over-/under-accumulation of capital, and iii) Samuelson (1958) three-date-life model, decomposing the efficiency gains from intergenerational transfers into markets and demographic components.

Pages: 55 pages
Date: 2025-01-15
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