Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245973 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers of the Max Planck Institute for Research on Collective Goods No. 2021/10
Publisher: 
Max Planck Institute for Research on Collective Goods, Bonn
Abstract: 
The paper gives conditions for dynamic inefficiency of laissez-faire allocations in an overlapping-generations model with safe and risky assets. If the rate of population growth is certain, the conditions given depend only on how the rate of return on safe assets compares to the growth rate. If no safe assets are held, the implicit relative price for non-contingent intertemporal exchanges takes the place of the safe rate of return. Returns on risky assets do not enter the comparison. The conclusion holds regardless of whether welfare assessments are made from an interim perspective, taking account of the information that people have, or from an ex ante perspective. If a laissez-faire allocation is dynamically inefficient, a Pareto improvement can be implemented by a suitable fiscal policy intervention, which includes specific taxes or subsidies that neutralize incentive effects on risky investments and the price effects they induce.
Subjects: 
Dynamic Inefficiency
overlapping-generations models
safe asset shortages
macro risk allocation
public debt
JEL: 
D15
D61
E21
E22
E62
H30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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