Dynamic efficiency and intergenerational altruism

Can dynamic inefficiency that may occur in societies populated by non-altruistic agents be removed by introducing intergenerational altruism? Although the answer seems to be negative, this paper shows, by means of a simple example, that the presence of an arbitrarily low proportion of altruists can be sufficient to prevent a society from reaching a non-Pareto optimal equilibrium. Intergenerational transfers from the old to the young can therefore provide an alternative—to public debt, fiat money or money bubbles which transfer goods from the young to the old—solution to the dynamic efficiency problem.