A characterization of inefficiency in stochastic overlapping generations economies

Gaetano Bloise and Filippo Calciano ()

No 2007093, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper, we provide a characterization of interim inefficiency in stochastic economies ofoverlapping 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 characterization exploits a suitably Modified Cass Criterion, grounded on the long-run 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 inefficiency. In addition, for sequentially incomplete markets, we adopt a suitable notion of unambiguous inefficiency, separating the inefficient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous inefficiency reduces to inefficiency when markets are sequentially complete.

Keywords: stochastic overlapping generations economies; inefficiency; competitive prices; cass criterion; social security; incomplete markets (search for similar items in EconPapers)
JEL-codes: D52 D61 (search for similar items in EconPapers)
Date: 2007-12-01
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Related works:
Working Paper: A characterization of inefficiency in stochastic overlapping generations economies (2009)
Journal Article: A characterization of inefficiency in stochastic overlapping generations economies (2008)
Working Paper: A Characterization of Inefficiency in Stochastic Overlapping Generations Economies (2007)
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