Trading Off Generations: Infinitely-Lived Agent Versus OLG

50 Pages Posted: 26 Dec 2009 Last revised: 28 Jul 2011

See all articles by Maik T. Schneider

Maik T. Schneider

University of Bath

Christian P. Traeger

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; University of Oslo - Ragnar Frisch Centre for Economic Research; University of California, Berkeley - Department of Agricultural & Resource Economics

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 2010

Abstract

The prevailing literature discusses intergenerational trade-offs predominantly in infinitely-lived agent models despite the finite lifetime of individuals. We discuss these trade-offs in a continuous time OLG framework and relate the results to the infinitely-lived agent setting. We identify three shortcomings of the latter: First, underlying normative assumptions about social preferences cannot be deduced unambiguously. Second, the distribution among generations living at the same time cannot be captured. Third, the optimal solution may not be implementable in overlapping generations market economies. Regarding the recent debate on climate change, we conclude that it is indispensable to explicitly consider the generations' life cycles.

Keywords: climate change, discounting, infinitely-lived agents, intergenerational equity, overlapping generations, time preference

JEL Classification: D63, H23, Q54

Suggested Citation

Schneider, Maik T. and Traeger, Christian P. and Winkler, Ralph, Trading Off Generations: Infinitely-Lived Agent Versus OLG (March 2010). Available at SSRN: https://ssrn.com/abstract=1527146 or http://dx.doi.org/10.2139/ssrn.1527146

Maik T. Schneider (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Christian P. Traeger

University of Oslo - Department of Economics ( email )

Norway

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 81679
Germany

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

Ralph Winkler

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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