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The Zilcha criterion for dynamic inefficiency

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  • Peter Rangazas
  • Steven Russell

Abstract

This paper reexamines the condition $E\{\ln r\} > \ln $ (1 + n), which Zilcha (1991) presents as a necessary and sufficient condition for dynamic inefficiency of stationary allocations in overlapping generation models with stochastic production. We show that this condition is necessary but not sufficient for a stationary allocation to be dynamically inefficient by Zilcha’s definition. We also show that there is a narrow but widely studied class of specifications in which the Zilcha test is both necessary and sufficient for dynamic inefficiency of stationary competitive equilibrium allocations. Outside this class, however, counterexamples can be constructed relatively easily. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Peter Rangazas & Steven Russell, 2005. "The Zilcha criterion for dynamic inefficiency," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 701-716, October.
    • Handle: RePEc:spr:joecth:v:26:y:2005:i:3:p:701-716
    DOI: 10.1007/s00199-004-0547-8
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    Cited by:

    1. Stefan Homburg, 2014. "Overaccumulation, Public Debt and the Importance of Land," German Economic Review, Verein für Socialpolitik, vol. 15(4), pages 411-435, November.
    2. Julia, Knolle, 2014. "An Empirical Comparison of Interest and Growth Rates," MPRA Paper 59520, University Library of Munich, Germany.
    3. Martin Barbie & Marten Hillebrand, 2018. "Bubbly Markov equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(3), pages 627-679, October.
    4. Martin Barbie & Ashok Kaul, 2009. "The Zilcha criteria for dynamic inefficiency reconsidered," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 339-348, August.

    More about this item

    Keywords

    Dynamic inefficiency; Zilcha criterion.;

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