Cremers, Emily

Journal of Economic Dynamics and Control Vol. 30 no. 11 (2006): 1915-1936.

This paper examines dynamic efficiency in the context of a two-sector overlappinggenerations model. First, conditions for dynamic efficiency in a centrally planned economy arederived. Then, in a competitive environment, the implications of dynamic (in)efficiency for thesteady state relative price and steady state welfare are demonstrated. For the special case of alog-linear world, the golden rule savings rate is identified along with restrictions on parametersthat yield dynamically efficient steady states. The results are further demonstrated via awelfare analysis of a simple tax/subsidy scheme.

JEL Classification: D9, E13, O41

Keywords: dynamic efficiency, overlapping generations model, Two-Sector