Stationary Markovian equilibrium in altruistic stochastic OLG models with limited commitment

Łukasz Balbus, Kevin Reffett, Łukasz Woźny

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

We introduce a new class of infinite horizon altruistic stochastic OLG models with capital and labor, but without commitment between the generations. Under mild regularity conditions, for economies with either bounded or unbounded state spaces, continuous monotone Markov perfect Nash equilibrium (henceforth MPNE) are shown to exist, and form an antichain. Further, for each such MPNE, we can also construct a corresponding stationary Markovian equilibrium invariant distribution. We then show for many versions of our economies found in applied work in macroeconomics, unique MPNE exist relative to the space of bounded measurable functions. We also relate all of our results to those obtained by promised utility/continuation methods based upon the work of Abreu etal. (1990). As our results are constructive, we can provide characterizations of numerical methods for approximating MPNE, and we construct error bounds. Finally, we provide a series of examples to show the potential applications and limitations of our results.

Original languageEnglish (US)
Pages (from-to)115-132
Number of pages18
JournalJournal of Mathematical Economics
Volume48
Issue number2
DOIs
StatePublished - Mar 1 2012

Keywords

  • Commitment
  • Constructive methods
  • Markov perfect Nash equilibrium
  • Stochastic games

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics

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