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Is There a General Criterion for Dynamic Efficiency?

Author

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  • M. A. C. Martins
  • Joao Ricardo Faria

Abstract

This paper analyses an overlapping generations model with absolute bequest motive. It is shown that the widely accepted criterion to verify dynamic efficiency does not apply to this case. In our model the social planner maximizes welfare by choosing a capital stock larger than the golden rule and a real rate of interest smaller than the rate of growth of the economy.

Suggested Citation

  • M. A. C. Martins & Joao Ricardo Faria, 1999. "Is There a General Criterion for Dynamic Efficiency?," Working Paper Series 89, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:wpaper:89
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    File URL: http://www.finance.uts.edu.au/research/wpapers/wp89.pdf
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    References listed on IDEAS

    as
    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    3. Araujo, Jorge Thompson & Martins, Marco A. C., 1999. "Economic growth with finite lifetimes," Economics Letters, Elsevier, vol. 62(3), pages 377-381, March.
    4. Martins, Marco A. C., 1995. "Bonds, interest and capital accumulation," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 49(4), October.
    5. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    dynamic efficiency; bequest motive; overlapping generations; capital accumulation;
    All these keywords.

    JEL classification:

    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • D69 - Microeconomics - - Welfare Economics - - - Other

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