In the following Endowment OLG model with the same assumptions that was assumed in class on 1/14 :
Assume :β = 1 , u(c) = ln(2 + c) , endowments of (0;2) when the consumer is ( young, old ).
1. Solve for the competitive equilibrium (what does each generation consume?, what is the real interest rate? )
2. Is this equilibrium pareto optimal? If so, why? If not, provide another feasible allocation that is pareto superior
(no worse for any agent, better for at least one) to the competitive allocation
Assume :β = 1 , u(c) = ln(2 + c) , endowments of (0;2) when the consumer is ( young, old ).
1. Solve for the competitive equilibrium (what does each generation consume?, what is the real interest rate? )
2. Is this equilibrium pareto optimal? If so, why? If not, provide another feasible allocation that is pareto superior
(no worse for any agent, better for at least one) to the competitive allocation
