A Note On The Characterization Of Inefficiency In Stochastic Overlapping Generations Economies

Gaetano Bloise and Filippo Calciano ()

No 83, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: In this paper, we provide a characterization of interim ine±ciency 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 characteri- zation exploits a suitably Modi¯ed Cass Criterion, grounded on the long-rung 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 ine±ciency. In addition, for sequentially incomplete markets, we adopt a suitable notion of unambiguous ine±ciency, separating the ine±cient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous ine±ciency reduces to ine±ciency when markets are sequentially complete.

Keywords: Stochastic overlapping generations economies; ine±ciency; com- (search for similar items in EconPapers)
JEL-codes: D52 D61 (search for similar items in EconPapers)
Pages: 29
Date: 2007-12
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