DP12787 Equilibrium Indeterminacy with Parental Altruism

Author(s): Pietro Reichlin
Publication Date: March 2018
Keyword(s): Bequets, Indeterminacy, parental altruism
JEL(s): E10, E21, E32
Programme Areas: Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12787

Equilibria where altruistic generations are linked via positive bequests are indeterminate and subject to sunspot variables when each individual's utility in non-separable in her own age contingent consumption and sufficiently biased towards old age. This result does not require strong income effects and it applies if individuals select their own savings and bequests by taking the decisions of their offsprings and successors as given. In this case, the equivalence with the Dynastic Equilibria of a Ramsey-type model envisaged in Barro (1974) fails. I show that the structure of equilibria of the olg model with altruism is more similar to the one generated in a canonical olg economy with two goods.