Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 13 Jan 2018 My Price 8.00

source of dynamic inefficiency

The source of dynamic inefficiency. (Shell, 1971.) There are two ways in which the Diamond and Samuelson models differ from textbook models. First, markets are incomplete: because individuals cannot trade with individuals who have not been born, some possible transactions are ruled out. Second, because time goes on forever, there are an infinite number of agents. This problem asks you to investigate which of these is the source of the possibility of dynamic inefficiency. For simplicity, it focuses on the Samuelson overlapping-generations model (see the previous two problems), again with log utility and no discounting. To simplify further, it assumes n = 0 and 0 < x=""><>

 

 

(b) Infinite duration. Suppose that the economy ends at some date T. That is, suppose the individuals born at T live only one period (and hence seek to maximize C1T), and that thereafter no individuals are born. Show that the decentralized equilibrium is Pareto-efficient.

 

(c) In light of these answers, is it incomplete markets or infinite duration that is the source of dynamic inefficiency?

 

 

 


Answers

Maurice Tutor
(5)
Status NEW Posted 13 Jan 2018 07:01 PM My Price 8.00

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