Parental altruism, life expectancy and dynamically inefficient equilibria

d'Albis, Hippolyte and Decreuse, Bruno (2007): Parental altruism, life expectancy and dynamically inefficient equilibria.

Abstract

Macrodynamic models with finite lifetime and selfish individuals may feature (dynamically) inefficient equilibria, while models with infinite lifetime and altruistic individuals cannot. Do strong intergenerational altruism and high life expectancy prevent the occurence of inefficient equilibria? To answer this question, we present a continuous time OLG model which generalizes the Blanchard-Buiter-Weil model. Our main innovation relies on the introduction of parental altruism, whose intensity is variable. We show that parental altruism and life expectancy actually favor overaccumulation. Theoretical results are illustrated by a parametrization from US data. Our numerical exercises suggest that the US economy is dynamically inefficient, mainly because life expectancy is sufficiently short.

• Item Type: MPRA Paper
• Institution: GREQAM
• Language: English
• Keywords: Overlapping generations model; Productive capital; Dynamic (in)efficiency; Intergenerational altruism
• Subjects: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; D - Microeconomics > D9 - Intertemporal Choice > D90 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

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