The General Model

Abstract

Following the modeling strategy proposed in the introduction the following two chapters develop a theoretical framework that forms the basis for the subsequent study of pension systems and the issues motivated above. In this regard, the present chapter introduces the basic setup of the model under a general class of assumptions on the microeconomic characteristics of consumers and producers. This ensures that the model is sufficiently flexible and amendable to future extensions. The primary goal is to derive the demand behavior of consumers and firms from suitably defined decision problems. In a second step, the market structure and the formation of prices and allocations on the respective market is formulated by employing the concept of a temporary equilibrium.