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The Reconciliation of Micro and Macro Economics

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Abstract

It is suggested that the appropriate structure for the reconciliation of micro and macroeconomics is an infinite horizon overlapping generations (OLG) model with many finitely lived natural persons and one infinitely lived strategic player without preferences whose choice rule is determined by the periodic political choice of the finitely lived players who are alive and politically strategically active at the time of choice. This player may be interpreted as government. In the steps from the finite horizon general equilibrium (GE) model to the overlapping generations model (GGOLG) it is suggested that even without exogenous uncertainty, if economic efficiency is to be attained it is logically and technologically necessary to introduce government, government money, credit, bankruptcy and inheritance conditions.

Suggested Citation

  • Martin Shubik, 1989. "The Reconciliation of Micro and Macro Economics," Cowles Foundation Discussion Papers 915, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:915
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    1. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1982. "We can't disagree forever," Journal of Economic Theory, Elsevier, vol. 28(1), pages 192-200, October.
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