Abstract

In the standard analysis of overlapping generations economies with gifts from children to parents, each generation takes the actions of other generations as given. The resulting equilibrium is dynamically inefficient. In reality, however, parents realize that children will respond to higher parental saving by reducing gifts. For a broad class of gift economies, this implicit tax on saving pushes the equilibrium to dynamic efficiency. This result reestablishes the potential relevance of the gift model to the US economy, renders moot an important part of the Ricardian equivalence debate, and provides a motivation for a type of social security system.

Download PDF

Citation

O'Connell, Stephen, and Stephen Zeldes. "Dynamic Efficiency in the Gifts Economy." Journal of Monetary Economics 31, no. 3 (June 1993): 363-80.

Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.

Each topic is linked to an index of publications on that topic.