The temporal realizations of a random state variable in an overlapping generations model create an informational diversity between members of different generations and require a reexamination of the optimality that competitive equilibria might display in such an environment. Using an optimality criterion that reflects this informational diversity we prove the optimality of competitive equilibrium in a model with a fixed stock of fiat money, a single-spot market, and good endowments that follow a Markov process. The need for an optimality criterion that incorporates informational diversity is further motivated by studying the same model with the operation of complete contingent commodities markets.
Bibliographical noteFunding Information:
* This paper extends some results from my Ph. D. dissertation. Numerous discussions with Neil Wallace who served as the chairman of my doctoral committee were invaluable for the development of this work. I have also benefit from discussions with David Cass, Ben Eden. Lars Hansen, James Jordan, Karl Shell and Robert Townsend. Financial support from the NSF and the University of Minnesota Graduate School is gratefully acknowledged.
ASJC Scopus subject areas
- Economics and Econometrics