Unemployment dynamics in an OLG economy with public pensions

Pension benefits in old age establish a disincentive to save in youth, thereby yielding lower levels of capital stock and the wage rate. As a result, the trade union has an incentive to change the composition of its two targets: employment and the wage rate. This paper develops a model that includes employment effects of public pensions via capital accumulation and union wage setting. Within this framework, we consider how contribution rates to the pension system influence the level and time path of the unemployment rate. It is demonstrated that (1) a higher contribution rate results in a lower unemployment rate, and (2) the economy with a high (low) contribution rate experiences monotone convergence towards (oscillatory convergence towards or a period-2 cycle around) the steady state. The author would like to thank an anonymous referee, Kazutoshi Miyazawa, and seminar participants at Osaka University for their useful comments and suggestions, and Masako Ikefuji and Hiroaki Yamagami for their research assistance. Financial support from the Japan Society for the Promotion of Science (JSPS) through a Grant-in-Aid for Young Scientists (B) (No.17730131), the Asahi Glass Foundation, the Japan Economic Research Foundation and the 21st Century COE Program (Osaka University) is gratefully acknowledged. All remaining errors are mine.     

Longevity and environmental quality in an OLG model

Whereas existing OLG models with endogenous longevity neglect the impact of environmental quality on mortality, this paper studies the design of the optimal public policy in a two-period OLG model where longevity is influenced positively by health expenditures, but negatively by pollution due to production. It is shown that if agents, when choosing how much to spend on health, do not internalize the impact of their decision on environmental quality (i.e. the space available for each person), the decentralization of the social optimum requires a tax not only on capital income (to internalize the pollution externality), but, also, on health spending (to internalize the congestion externality). We also examine the second-best policy under a limited set of taxation instruments, and explore its sensitivity to the pollution process and to individual preferences.     

Fertility,income and welfare in an OLG model with regulated wages

We analyse the effects of the regulation of wages in a standard one-sector OLG model of neoclassical growth extended to account for endogenous fertility decisions of households and unemployment benefit policies financed at balanced budget. In contrast with the prevailing literature, which has failed to pay due attention to inter-temporal contexts, our conclusion is that minimum wages may be introduced not only for equity reasons, that is, to increase the income of low-paid workers, but under suitable conditions—i.e., if production is sufficiently capital oriented and the unemployment benefits are high enough—minimum wage legislation might be considered as a source of increased economic performance despite unemployment, i.e. a regulated-wage economy performs better than a market-wage economy. As a consequence, since higher minimum wages raise per capita income together with increasing unemployment, our results imply that a positive correlation between unemployment and long-run income per-capita may exist. Further, the lifetime welfare of the representative generation may be increased as well. Finally, the wage rate may also be treated as a policy instrument for the control of population growth.

Existence of equilibrium in an OLG model with production and altruistic preferences

Summary. This note deals with the existence and uniqueness of a non-trivial steady-state equilibrium in an overlapping generations (OLG) model with productive capital and altruistic agents. We establish a necessary and sufficient condition for operative bequests which extends Abel (1987) and Weil (1987). Interestingly, we prove that the OLG model with production and altruistic agents always experiences a non-trivial steady-state equilibrium. Received: July 16, 1998; revised version: January 29, 1999     

International trade and capital accumulation in an overlapping generations model with a public intermediate good

We investigate the effects of a public intermediate good on trade patterns, capital accumulation, and the gains from trade in a two‐country, three‐sector overlapping generations model. A public intermediate good affects not only the productivity of private production but capital accumulation; thus, the results differ from those obtained in previous studies. First, opening to trade may accelerate capital accumulation in the higher‐savings country. Additionally, the country producing a public intermediate good more (which is labor‐intensive) may be the importer of the investment good (which is the most capital‐intensive). Finally, the lower‐savings country may have lower steady‐state welfare under trade.     

Balanced cycles in an OLG model with a continuum of finitely-lived individuals

This paper studies the intertemporal equilibrium of a barter economy populated with a continuum of finitely-lived overlapping generations. Assuming isoelastic preferences and zero endowments at the beginning and the end of the individuals’ life-span, it proves the existence of an Hopf bifurcation and provides sufficient conditions on parameters for its occurrenceThe authors would like to thank an anonymous referee, Alain Venditti and Francesco Ricci for helpful comments and suggestions     

Monetary policy in a small open economy with durable goods and differing cash-in-advance constraints

We consider the effects of inflation in a small open economy when expenditures on non-durables are more heavily financed with money than expenditures on durables. The distinctions between non-durables and durables, and asymmetric cash-in-advance constraints give rise to important dynamics.     

Inflation and capital accumulation in an OLG model with money in the production function

This article analyses the consequences of the money supply growth rate on capital intensity and economic growth in an overlapping-generations model with real balances entering the production function. Within this theoretical framework, anticipated inflation generates an ambiguous effect on capital–labour ratio, because two forces work simultaneously in opposite directions: one driving towards a pure Tobin effect (due to the OLG demographic structure of the economy) and the other pushing down the capital stock (due to the productive role of real balances). Despite the unclear effects exerted on capital intensity, higher monetary growth rates unambiguously reduce real money demand, consumption, total wealth and welfare.     

Steady states in the OLG model with seignorage and long-lived agents

This note provides a direct proof of the fact that in a particular version of the overlapping generations model with long-lived agents and fiat money, there can be at most two stationary states. A simple argument showing the Pareto superiority of the low inflation steady state is also given.     

Seigniorage and Japanese fiscal sustainability: Simulation analysis using an overlapping generations model

This study examines two tax policies for achieving fiscal sustainability in Japan: (i) an increase in consumption tax and (ii) consumption tax hike combined with inflation. To evaluate these policies from both fiscal and welfare perspectives, I develop a multi-period overlapping generations model with money. The results reveal that, compared to the first policy, the second policy can substantially delay the timing of and curb the increase in consumption tax through seigniorage revenue. This suggests seigniorage could be a useful tool for the Japanese government in resolving its fiscal problems. In addition, in an aging Japan, the second policy can enhance future generations’ utility. Because inflation reduces money holdings and utility of the elderly, policies that cause inflation in the present but reduce it in the future improve the utility of future generations. From a social welfare viewpoint, such policies are desirable in a government that has foresight.     

The production and cost-sharing of an excludable public good

Summary We study a model of negotiation and coalition formation concerning a public expenditure and its financing. The agents must determine which coalition will jointly produce a public good, how much will be produced, and how the cost is to be shared. Agents that do not belong to the final coalition are excluded from consumption of the public good. Subgame-perfect Nash equilibria in stationary strategies lead to the formation of the grand coalition with an agreed alternative in the core of the economy. Conversely, for each alternative in the core, there exists a subgame-perfect Nash equilibrium in (pure) stationary strategies that leads to the formation of the grand coalition with that alternative.I wish to thank Dieter Balkenborg, Georg Noldeke, Shlomo Weber and Eyal Winter for helpful discussions. The comments of an anonymous referee greatly improved the quality of the exposition. Financial support from Deutsche Forschungsgemeinschaft, SFB 303, is gratefully acknowledged.     

Augmented serial rules for an excludable public good

Summary. We present a new class of rules named augmented serial rules for the provision of an excludable public good. First, we characterize this class by the four axioms of strategy-proofness, envy-freeness, access independence, and nonbossiness. Second, we identify two important subclasses by imposing an additional axiom: (i) anonymous augmented serial rules by anonymity, and (ii) Moulins serial rule by individual rationality.Received: 31 December 2002, Revised: 9 June 2004, JEL Classification Numbers: D71, D82, H41.This paper is a substantial revision of Serial cost sharing with simple games. I would like to thank Hervé Moulin, Yoshikatsu Tatamitani, an associate editor, and three anonymous referees for helpful suggestions and detailed comments. This research was partially supported by the Ministry of Education, Culture, Sports, Science, and Technology in Japan (Grant-in-Aid for 21st Century COE Program Microstructure and Mechanism Design in Financial Markets).     

公平相容约束与集体行动

This paper extends the work of Zhu Xianchen and Li Yulian (2007) by introducing the fairness compatibility constraint. Our work strengthens the explanatory power of their model. Whether a collective action can be realized depends not only on the organizer and followers’ individual rationality constraints, but also on their fairness compatibility constraints. Collective actions that meet the organizer’s individual rationality constraint but do not meet his fairness compatibility constraints cannot be realized. Furthermore, free-riders play a destructive role, which should not be ignored. Translated and revised from Jingjixue Jikan 经济学 (季刊) (China Economic (Quarterly)), 2007, 6(2): 597–606     

Provision of a pure local public good in a spatial model with many jurisdictions

This paper examines the provision of a pure local public good in jurisdictions that are spaced evenly along an infinite line. Each jurisdiction either supplies the local public good, or else its residents travel to another jurisdiction to consume the local public good. The equilibrium spacing between jurisdictions which supply the local public good, which can be uneven (varying between a minimum spacing and a maximum spacing for given exogenous parameters), can be greater than, equal to, or less than the socially optimal spacing.     

Capital Accumulation and Fiscal Policy in an OLG Model with Family Altruism

The idea of family altruism is that parents care only about their children's income and not about the use of this income made by the children. First, we establish dynamical properties which place the OLG model with family altruism halfway between the model with pure life‐cyclers ( Diamond 1965 ; American Economic Review 55, 1126–1150) and the one with dynastic altruism ( Barro 1974 ; Journal of Political Economy 82, 1095–1117). Then, we show that this concept leads to interesting fiscal policy conclusions less clear‐cut and more realistic than those obtained with the two previous standard OLG models: a pay‐as‐you‐go social security is neutral but not a public debt.     

When the public good conflicts with an apparent preference for unsustainable behaviour

The example of peatlands is used to demonstrate the challenges facing the sustainable management of natural resources in situations where the fragility of an environment is not appreciated by all stakeholders. We reveal, through the use of a survey applying both contingent valuation and discrete choice experiments, that many local people and others within the wider population, value peatlands as an example of a cultural landscape. However, there is a reluctance to stop extracting peat for domestic fuel even though the activity is undermining the ecological sustainability of this same landscape. This resistance is shown to arise because the cutting of peat is a well-established land use and a cessation of peat cutting is perceived to require the abandonment of traditional rights. In addition, the activity is widely regarded as more benign than industrial scale cutting for energy. The value attached to the landscape is an opportunity for conservation policy, but for this to succeed there must be an acknowledgement of local interests.     

Social capital as a public good and an oscillatory behaviour

In this study, we investigate optimal dynamics in a two-sector model in which the capital good is a public good. We obtain a sufficient condition under which optimal dynamics in fact follows non-linear dynamics, involving period-2 cycles and a tentshaped transition function.     

Optimal climate and fiscal policy in an OLG economy

This paper develops a climate–economy model to study the joint design of optimal climate and fiscal policies in economies with overlapping generations (OLGs). I demonstrate how capital taxation, if optimal, drives a wedge between the market costs of carbon (the net present value of marginal damages using the market interest rate) and the Pigouvian tax (the net present value of marginal damages using the consumption discount rate of successive OLGs). In contrast to deterministic infinitely lived representative agent models, at the optimum, the capital income tax is positive, the carbon price equals the market costs of carbon but it falls short of the Pigouvian tax when (i) preferences are not separable over consumption and leisure; and (ii) labor income taxes cannot be age-dependent. I also show that restrictions on climate change policy provide a novel rationale for positive capital income taxes.     

Global indeterminacy in an endogenous-growth model with public capital

This paper studies the patterns of growth in an endogenous-growth model where the labor supply is endogenous and sustained growth arises because the services derived from public capital increase the economic productivity. It is assumed that these services are congested by the number of households in the economy but they are not congested by the units of time that each household devotes to work. With this assumption, the dynamic equilibrium exhibits multiple balanced-growth paths, local and global indeterminacy, and limit cycles under some plausible fiscal policies. Our analysis points out that a large lump-sum tax is a necessary condition to obtain this complex equilibrium dynamic behavior.