The social viability of money. Competitive equilibria and the core of overlapping generations economies (Q1202135)

This book supplies a thorough and easy to understand analysis of the relationship between the core, the competitive equilibria and the monetary equilibria in finite commodity overlapping generations (OLG) economies. After a qualitative introduction to these concepts in chapter 1, the definition of OLG economies, a characterization of weakly Pareto optimal allocations (WPO) and a necessary and sufficient condition for Pareto optimality of WPO allocations are given in the second chapter. Chapter 3 deals with the definition and existence of competitive equilibria. In chapter 4, the role of money in the economy and its effect on consumer behavior are discussed. A condition for the existence of monetary equilibria (in the sense that there are competitive equilibria in which worthless fiat money can attain a positive market price) is obtained. In these three chapters, the main discussions are cast in the context of a one commodity economy although there are sections on the \(n\)-commodity economy at the end of each chapter. In the third part of the book, the above two concepts are discussed within the context of the core of OLG economies. In chapter 5 the core of the economy and sequential individual rationality are introduced. It is also shown that for a given aggregate endowment, for any Pareto optimal consumption allocation, there exists an individual distribution of the initial endowment for which that consumption allocation is either in the core or outside the core, which, in turn, implies that the core of an OLG economy can be empty. In chapter 6 the relation between the core and the competitive equilibria is investigated by using one agent per generation. The main results in this chapter are: All Pareto optimal Walrasian equilibria belong to the core, which is not the case for many agents as is shown in the last chapter, and in a single good economy monetary equilibria are not in the core. In chapter 7 the classical set, \(C\), is defined as the set of competitive equilibrium allocations that cannot be affected by monetary tax-transfer policies. It is shown here that: i) \(C\) is a subset of the set of Pareto optimal allocations; and ii) every competitive equilibrium in \(C\) belongs to the core. The most important result here is that every monetary equilibrium is excluded from the core with sufficient replication of the economy.