Overlapping Generations Models with Realistic Demography: Statics and Dynamics

Antoine Bommier and Ronald Lee

Working Papers from University of California at Berkeley, Demography of Aging

Abstract: The extensive literature on overlapping generation models is rich and productive, yet it suffers from its reliance on simplistic demographic assumptions which are largely unnecessary. The past literature has mainly assumed only two age groups and perfect survival until the end of the second of these. Theoretical results for two age groups sometimes do not generalize, and without mortality one cannot study the implications of its change. Such a crude model cannot even simultaneously accommodate dependent childhood, productive mid years, and retirement. Any kind of empirical implementation of these models is virtually impossible. This paper adopted a continuous age distribution with an arbitrary age schedule of mortality. The core economic model was standard. The new concept of reallocation system is sufficiently broad to include the real world variety of individual and institutional mechanisms, ranging from real capital formation through credit transactions to non-market transfers through the family or the government.

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