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Growth and Development

1991

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Full-Text Articles in Political Science

Intermediation, Bubbles, And Pareto Efficiency In Economies With Production, Mark Pingle, Leigh Tesfatsion Apr 1991

Intermediation, Bubbles, And Pareto Efficiency In Economies With Production, Mark Pingle, Leigh Tesfatsion

ISU Economic Report Series

In a recent study, Tirole (1985) extends Diamond's (1965, pp. 1130-1135) well-known overlapping generations model of a private production economy by permitting consumption loans. That is, in addition to financing the capital investment of firms, the savings of one generation can be used to finance the consumption of agents in other generations whose consumption demands are in excess of their endowments. Tirole then shows that the re sulting production-consumption loan economy fails to satisfy the First Welfare Theorem. Specifically, as reviewed in Section 2, below, two stationary competitive equilibria exist for this economy: a Pareto inefficient equilibrium e with ...