On optimality in intergenerational risk sharing

Gabrielle Demange

Economic Theory, 2002, vol. 20, issue 1, 27 pages

Abstract: This paper defines and studies optimality in a dynamic stochastic economy with finitely lived agents, and investigates the optimality properties of an equilibrium with or without sequentially complete markets. Various Pareto optimality concepts are considered, including interim and ex ante optimality. We show that, at an equilibrium with a productive asset (land) and sequentially complete markets, the intervention of a government may be justified, but only to improve risk sharing between generations. If markets are incomplete, constrained interim optimality is investigated in two-period lived OLG economies. We extend the optimality properties of an equilibrium with land and give conditions under which introducing a pay-as-you-go system at an equilibrium would not lead to any Pareto improvement.

Keywords: Overlapping generations; Incomplete markets; Optimality. (search for similar items in EconPapers)
JEL-codes: D52 D61 H55 (search for similar items in EconPapers)
Date: 2002-02-20
Note: Received: October 5, 1998; revised version: April 3, 2001
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Citations: View citations in EconPapers (59)

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Working Paper: On optimality in intergenerational risk sharing (2001)
Working Paper: On Optimality of Intergenerational Risk Sharing (2000)
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