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Samuelsonian Economics and the Twenty-First Century$
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Michael Szenberg, Lall Ramrattan, and Aron A. Gottesman

Print publication date: 2006

Print ISBN-13: 9780199298839

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199298839.001.0001

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Overlapping Generations

Overlapping Generations

Chapter:
(p.35) 1 Overlapping Generations
Source:
Samuelsonian Economics and the Twenty-First Century
Author(s):

Robert M. Solow

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199298839.003.0002

This chapter describes the original Samuelson model, which invites the distinction between theoretical and practical applications of the model. Overlapping generation models operate in infinite time. Assuming three periods, a person who wants to save for retirement in the next period can lend to a person in the first period. This is essential because the model deals with generations that are defined in terms of age, and people typically have different tastes and preferences over different age cohorts. Using the didactics of Samuelson's three-period model, the middle generation may want to lend excess current income (savings) to the younger generation, but not to the older one, for when the middle generation becomes old, it will want to consume its savings and earned interest. The interest rate is a bridge between current and postponed consumption. And consumption plus savings is constrained by the amount of wealth.

Keywords:   generation, finite time, infinite time, three-period models, perishable goods, self-validating prophecy

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