Steady-State Market Equilibrium, Long-Run Intergenerational Efficiency, and Optimality

Abstract

In the previous chapter we explored a competitive market economy with overlapping generations along an intertemporal equilibrium path. So far we have not been able to ascertain whether a market equilibrium with time–stationary per–efficiency capital intensities (i.e. a non–trivial steady state) does in fact exist, and if it exists, whether it is dynamically stable. These seminal questions will be investigated in the next section. Then we will define long-run intergenerational efficiency in our log-linear CD OLG economy, and provide a characterization of this efficiency notion. In the subsequent section the major question of this chapter will be explored, namely whether the steady state market equilibrium is long-run intergenerationally efficient. Moreover, the notion of intergenerational optimality will be introduced and compared to intergenerational efficiency. Finally, the role of resource augmenting technological progress for steady state economic growth is elaborated upon. As in Chaps. 3 and 4 we continue to assume here that both exhaustible and renewable natural resources are abundant and hence need not be considered in our model.