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Solving dynamic inefficiency with politically sustainable guest worker programs

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  • Lopez-Velasco, Armando R.

Abstract

An overlapping generations economy that is dynamically inefficient can solve the inefficiency by allowing foreign guest workers every period in order to decrease capital per worker. These policies increase the welfare of all generations and can be politically supported by a young majority under Markov and under trigger strategies that “reward” or “punish” the behavior of previous generations.

Suggested Citation

  • Lopez-Velasco, Armando R., 2016. "Solving dynamic inefficiency with politically sustainable guest worker programs," Economics Letters, Elsevier, vol. 148(C), pages 1-4.
    • Handle: RePEc:eee:ecolet:v:148:y:2016:i:c:p:1-4
    DOI: 10.1016/j.econlet.2016.09.002
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    References listed on IDEAS

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    1. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 1-19.
    2. Lena Calahorrano & Oliver Lorz, 2011. "Aging, Factor Returns, and Immigration Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(5), pages 589-606, November.
    3. Ortega, Francesc, 2005. "Immigration quotas and skill upgrading," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1841-1863, September.
    4. Elizabeth Caucutt & Thomas Cooley & Nezih Guner, 2013. "The farm, the city, and the emergence of social security," Journal of Economic Growth, Springer, vol. 18(1), pages 1-32, March.
    5. Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-544, October.
    6. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
    7. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
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    Cited by:

    1. Lopez-Velasco, Armando R., 2022. "Social security as Markov equilibrium in OLG models: Clarifications and some new insights," Economics Letters, Elsevier, vol. 217(C).
    2. Lopez-Velasco, Armando R., 2024. "Markov equilibrium of social security: An analytic solution under CRRA utility and the future of social security," Economic Modelling, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Markov perfect; Guest workers; Dynamic inefficiency; Overlapping generations;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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