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Overlapping Generations Model of General Equilibrium

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Abstract

The OLG model of Allais and Samuelson retains the methodological assumptions of agent optimization and market clearing from the Arrow–Debreu model, yet its equilibrium set has different properties: Pareto inefficiency, multiplicity, positive valuation of money, and a golden rule equilibrium in which the rate of interest is equal to population growth (independent of impatience). These properties are shown to derive not from market incompleteness, but from lack of market clearing ‘at infinity’: they can be eliminated with land or uniform impatience. The OLG model is used to analyse bubbles, social security, demographic effects on stock returns, the foundations of monetary theory, Keynesian vs. real business cycle macromodels, and classical vs. neoclassical disputes.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    John Geanakoplos

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    Geanakoplos, J. (2008). Overlapping Generations Model of General Equilibrium. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_1754-2

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    • DOI: https://doi.org/10.1057/978-1-349-95121-5_1754-2

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    • Online ISBN: 978-1-349-95121-5

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    Chapter history

    1. Latest

      Overlapping Generations Model of General Equilibrium
      Published:
      03 April 2017

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1754-2

    2. Original

      Overlapping Generations Model of General Equilibrium
      Published:
      26 November 2016

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1754-1

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