Equilibrium for Overlapping Generations in Continuous Time

We prove the existence of general equilibrium for continuous-time overlapping-generations models. Previous theorems exclude all non-linear C.E.S. and von Neumann–Morgenstern preferences and exclude production. Our primitive assumptions are satisfied by such preferences and by all Markovian production technologies satisfying Bewley's assumptions for Arrow–Debreu models provided that storage is possible, at some finite rate of depreciation and some positive capacity. A non-existence example shows our Markovian and storage assumptions cannot be dropped.Journal of Economic LiteratureClassification Numbers: C62, D51, D90.     

纯交换OLG经济中的习惯类型与经济的动态性质

在OLG的纯交换经济中,区分了内部习惯和外部习惯对经济动态性质的影响。我们发现内部习惯增加了年轻人的储蓄并可以把古典经济转变为萨谬尔森经济;外部习惯减少了年轻人的储蓄并可以把萨谬尔森经济转变为古典经济。不论是外部习惯还是内部习惯,都提高了在相对风险规避系数一定的情况下消费者忍受风险的能力,从而可能导致经济的周期运动。     

Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky Prices

We study adaptive learning in a monetary overlapping generations model with sticky prices and monopolistic competition for the case where learning agents observe current endogenous variables. Observability of current variables is essential for informational consistency of the learning setup with the model setup but generates multiple temporary equilibria when prices are flexible and prevents a straightforward construction of the learning dynamics. Sticky prices overcome this problem by avoiding simultaneity between prices and price expectations. Adaptive learning then robustly selects the determinate (monetary) steady state independent from the degree of imperfect competition. The indeterminate (non-monetary) steady state and non-stationary equilibria are never stable. Stability in a deterministic version of the model may differ because perfect foresight equilibria can be the limit of restricted perceptions equilibria of the stochastic economy with vanishing noise and thereby inherit different stability properties. This discontinuity at the zero variance of shocks suggests one should analyse learning in stochastic models.     

Cooperation in an Overlapping Generations Experiment

Recent theoretical work shows that folk theorems can be developed for infinite overlapping generations games. Cooperation in such games can be sustained as a Nash equilibrium. But, of course, there are other equilibria. This paper investigates experimentally whether cooperation actually occurs in a simple overlapping generations game. Subjects both play the game and formulate strategies. Our main finding is that subjects fail to exploit the intertemporal structure of the game. Even when we provided subjects with a recommendation to play the grim trigger strategy, most of the subjects still employed safe history-independent strategies. Journal of Economic Literature Classification Numbers: C72, C92, D90.     

Fiscal Policy in an Overlapping Generations Model with Bequest-as-Consumption

This paper analyzes an overlapping generation (OLG) growth model wherein saving finances second period consumption and bequest‐as‐consumption. First, it looks at the market equilibrium and at the optimal solution; then it turns to the issue of decentralizing the optimal solution with various taxes and transfers. Depending on the available instruments, either a first‐best or a second‐best optimum can be achieved. Throughout the paper, the results are contrasted with those obtained in the standard OLG model without intergenerational transfers.     

An Overlapping Generations Model of Climate-Economy Interactions

A numerically calibrated overlapping generations model of climate change and the world econommy is examined in this paper. In the absence of intergenerational transfers, efficient rates of greenhouse gas emissions abatement rise from 16% in the present to 25% in the long run, while mean global temperature increases by 7.4°C relative to the preindustrial norm. A utilitarian optimum, which attaches equal weight to each generation's life-cycle utility, yields abatement rates that rise from 48% to 89%, with a long-run temperature increase of 3.4°C. A second-best utilitarian path, in which intergenerational transfers are by assumption institutionally infeasible, also supports stringent abatement measures.     

Capital Taxation, Tobin's q and Overlapping Generations

This study examines the effect of capital taxation on the long-term equilibrium in an intertemporal model, incorporating overlapping generations of the Blanchard–Weil type and value-maximizing firms with adjustment costs in investment. I demonstrate that an increase in capital taxation raises the steady-state expected lifetime utility of an agent born after the tax increase, provided the intergenerational redistribution effect achieved through lowering the rate of return is greater than that achieved through the tax revenue effect owing to the reduced capital–labour ratio, and that an increased ITC rate would not necessarily raise the steady-state lifetime utility of all agents.
JEL Classification Numbers: D91, D92, E62, H24, H25.     

Capital Accumulation in a Stochastic Overlapping Generations Model with Social Security

This paper analyzes the impact of pay-as-you-go financed social security on the stochastic process for the capital stock in a stochastic overlapping generations model. It is shown that the probability distribution of the capital stock in absence of social security dominates that in a pay-as-you-go system in the sense of stochastic dominance. Furthermore, the study demonstrates that the sufficient conditions ensuring the existence and uniqueness of stationary equilibria in a pay-as-you-go system are more restrictive than in the model without social security. Journal of Economic Literature Classification Numbers: C62, H55.     

Efficiency and Lack of Commitment in an Overlapping Generations Model with Endowment Shocks

This paper considers a pure exchange stochastic overlapping generations model in which, on each date, an economy faces an aggregate endowment shock. On each date, a young agent and an old agent simultaneously decide how much of their respective endowments to transfer to the other agent; however, a young agent cannot make promises about how much he or she will give when old. In this sense, an economy faces a limited commitment constraint. This paper characterizes an efficient intergenerational risk sharing allocation that satisfies a limited commitment constraint, and also studies the role of money and history in a stochastic overlapping generations economy.     

Land-Tax, Transfer and Growth in an Endogenously Growing Economy with Overlapping Generations

In this paper we investigate the effect of a tax on land rent on the growth rate of capital in a growing economy with overlapping generations. A tax on land rent has a potential to increase the growth rate of capital. If the model is extended to allow the tax revenue to be refunded to individuals, a tax on land rent may deter growth to the extent that the tax revenue is transferred to the older generation.
JEL Classification numbers: H31, O41.     

Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems

This paper analyses the sustainability of inter-generational transfers in Samuelson's consumption-loan model when agents are imperfectly informed about past events. We find that with mild informational constraints, transfers cannot be supported by pure-strategy equilibria. Mixed strategies allow transfers to be sustained even if agents have little information, so that a version of the Folk theorem holds. However, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation as in Harsanyi (1973), these mixed strategy equilibria unravel, and only the zero-transfer allocation survives as the unique rationalizable outcome. This result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified.     

Endogenous Games and Mechanisms: Side Payments Among Players

We characterize the outcomes of games when players may make binding offers of strategy contingent side payments before the game is played. This does not always lead to efficient outcomes, despite complete information and costless contracting. The characterizations are illustrated in a series of examples, including voluntary contribution public good games, Cournot and Bertrand oligopoly, principal–agent problems, and commons games, among others.     

The Transfer Problem and Intergenerational Allocation in an Overlapping Generations Model

We investigate the transfer problem between two countries in the steady state in a one-sector overlapping generations model and explain how transfers should be shared between the young and old generations of the donor country and allocated across the generations of the recipient country. Except at the golden rule of capital accumulation, the ratios of the burden and distribution of transfers between the young and old generations affect welfare. We obtain the following results. First, the sharing of the transfer burden in the donor country depends on the relative size of two effects, namely, a negative direct effect and a positive indirect effect. If the former exceeds the latter, it is preferable for the donor country to allocate all of the transfer burden to the old generation and vice versa. Second, from the viewpoint of welfare maximization, it is preferable for the recipient country to distribute all of the transfers to the young generation. In contrast to the existing literature, these results suggest that the setting whereby the young generation of the donor country defrays all transfer costs may not be justifiable from the viewpoint of donor welfare maximization.     

Strong Equilibrium in Congestion Games

[6]introduced the class of congestion games and proved that they always possess a Nash equilibrium in pure strategies. Here we obtain conditions for the existence of a strong equilibrium in this class of games, as well as for the equivalence of Nash and strong equilibria. We also give conditions for uniqueness and for Pareto optimality of the Nash equilibrium. Except for a natural monotonicity assumption on the utilities, the conditions are expressed only in terms of the underlying congestion game form. It turns out that avoiding a certain type of bad configuration in the strategy spaces is essential to positive results.Journal of Economic LiteratureClassification Numbers: C71, C72, D62.     

Correlated Equilibrium in Stochastic Games

We study the existence of uniform correlated equilibrium payoffs in stochastic games. The correlation devices that we use are either autonomous (they base their choice of signal on previous signals, but not on previous states or actions) or stationary (their choice is independent of any data and is drawn according to the same probability distribution at every stage). We prove that any n-player stochastic game admits an autonomous correlated equilibrium payoff. When the game is positive and recursive, a stationary correlated equilibrium payoff exists. Journal of Economic Literature Classification Numbers: C72, C73.     

Finitely Many Players with Bounded Recall in Infinitely Repeated Games

We study the set of limit points of equilibrium payoffs in n-player repeated games, with bounded recall, when the memory capacities of all the players grow to infinity. Two main issues are explored: (i) whether differential information enables players to play correlatively, and (ii) the extent to which boundedly rational players can learn others′ behavior patterns and conceal their own. Journal of Economic Literature Classification Number: 026.     

Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria

Entry game models are often used to study the nature of firms' profits and the nature of competition among firms in empirical studies. However, when there are multiple players in an oligopoly market, the resulting multiple equilibria have made it difficult in previous studies to estimate the payoff functions of players in complete information, static and discrete games without using unreasonable assumptions. To overcome this difficulty, the present paper proposes a practical estimation method for an entry game with three players using a Bayesian approach. Some mild assumptions are imposed on the payoff function, and the average competitive effect is used to capture the entry effect of the number of firms. Our proposed methodology is applied to Japanese airline data from the year 2000, when there were three major airline companies, ANA, JAL and JAS. The model comparison is conducted to investigate the nature of strategic interaction among these Japanese airline companies.     

Overlapping Generations or Infinitely-Lived Agents: Intergenerational Altruism and the Economics of Global Warming

Do we need an overlapping generations model for the economics of global warming? To answer this question, an infinitely-lived agent (ILA) approach and an overlapping generations (OLG) model are contrasted. ILA and OLG can be viewed as polar representations of intergenerational altruism. With ILA an immortal agent acts through his investment/savings decisions as trustee on the behalf of the future generations. With OLG, agents need not behave altruistic. They simply save during working years and dissave completely during retirement. Nevertheless, ILA and OLG must not differ in their implication for greenhouse policy. Greenhouse gas abatement is a straightforward alternative to physical capital formation and, even without altruism, each age cohort has an incentive to provide current abatement in order to reduce future damages attributable to climate change. Indeed, under reasonable assumptions and parameter values, our simulations reveal such an invariance result. Provided carbon taxes are the only policy tool and tax revenues are recycled through socially mandated rules, projections of economic growth, climate change and energy consumption are only insignificantly affected by the choice of approach.     

Welfare Analysis of a Fiscal Reconstruction Policy in an Overlapping Generations Economy with Public Investment

Constructing an endogenously growing overlapping generations model with public investment, we examine the welfare effects of a fiscal reconstruction policy. In this paper we define a fiscal reconstruction policy as a policy where the government reduces its spending level without changing the tax revenue and allocates the surplus of the revenue to redeem public debt. We show that if government spending is not productive it is possible that a fiscal reconstruction policy improves the utilities of both the current and future generations, while if government spending is productive it can harm the utilities of both generations. Received February 26, 2002; revised version received July 8, 2002 Published online: February 17, 2003