On equilibrium for overlapping generations organizations

Edward C. Prescott, José Víctor Ríos-Rull

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Abstract

Necessary conditions for equilibrium are that beliefs about the behavior of other agents are rational and individuals maximize. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, organizational equilibrium that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program.

Original languageEnglish (US)
Pages (from-to)1065-1080
Number of pages16
JournalInternational Economic Review
Volume46
Issue number4
DOIs
StatePublished - Nov 2005

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Overlapping generations
Optimality

ASJC Scopus subject areas

  • Economics and Econometrics

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On equilibrium for overlapping generations organizations. / Prescott, Edward C.; Ríos-Rull, José Víctor.

In: International Economic Review, Vol. 46, No. 4, 11.2005, p. 1065-1080.

Research output: Contribution to journalArticle

Prescott, Edward C. ; Ríos-Rull, José Víctor. / On equilibrium for overlapping generations organizations. In: International Economic Review. 2005 ; Vol. 46, No. 4. pp. 1065-1080.
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