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ON EQUILIBRIUM FOR OVERLAPPING GENERATIONS ORGANIZATIONS *

Edward Prescott and José-Víctor Ríos-Rull

International Economic Review, 2005, vol. 46, issue 4, 1065-1080

Abstract: Necessary conditions for equilibrium are that beliefs about the behavior of other agents are rational and individuals maximize. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, "organizational equilibrium" that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2005
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International Economic Review is currently edited by Harold L. Cole

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