Efficiency and Lack of Commitment in an Overlapping Generations Model with Endowment Shocks

Koichi Miyazaki

The Japanese Economic Review, 2014, vol. 65, issue 4, 499-520

Abstract: type="main">

This paper considers a pure exchange stochastic overlapping generations model in which, on each date, an economy faces an aggregate endowment shock. On each date, a young agent and an old agent simultaneously decide how much of their respective endowments to transfer to the other agent; however, a young agent cannot make promises about how much he or she will give when old. In this sense, an economy faces a limited commitment constraint. This paper characterizes an efficient intergenerational risk sharing allocation that satisfies a limited commitment constraint, and also studies the role of money and history in a stochastic overlapping generations economy.

Date: 2014
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