Abstract
This paper considers a pure exchange stochastic overlapping generations model in which, on each date, an economy faces an aggregate endowment shock. On each date, a young agent and an old agent simultaneously decide how much of their respective endowments to transfer to the other agent; however, a young agent cannot make promises about how much he or she will give when old. In this sense, an economy faces a limited commitment constraint. This paper characterizes an efficient intergenerational risk sharing allocation that satisfies a limited commitment constraint, and also studies the role of money and history in a stochastic overlapping generations economy.
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I am grateful to two anonymous referees, and to Edward Green, Ruilin Zhou, Neil Wallace, Alexander Monge-Naranjo, Volker Böhm, Makoto Saito, Bruno Strulovici, Srinivas Tadigadapa, Sascha Claudius, Gary Lyn, Yuanyuan Wan and participants at the 2009 Far East and South Asia Meeting of the Econometric Society and Midwest Economic Meeting Economic Theory Fall 2009, Hitotsubashi University, the Institute of Social and Economic Research of Osaka University, National Taiwan University, the Institute of Economics of Academia Sinica, and the 4th World Congress of the Game Theory Society for helpful comments and suggestions. I am also grateful to the National Taiwan University and National Science Council of Taiwan (100-2410-H-002–071-MY2) for financial support.