Document Type

Report

Publication Date

4-1997

Number

42

Abstract

It is well known that the first welfare theorem fails for the pure exchange^overlapping generations economy studied by Samuelson (1958) and for the private production overlapping generations economy studied by Diamond (1965). Tirole (1985) combines and extends the Samuelson and Diamond frameworks by permitting both unsecured debt and private pro duction and shows that the first welfare theorem stillfails to hold. This paper shows that the reason for this failure is that intermediation is niodelled as a purely passive coordination ac tivity implemented by a Walrasian Auctioneer.

Published As

This report has been published in Macroeconomic Dynamics / Volume 2 / Issue 02 / June 1998, pp 183-212, 1998 Cambridge University Press

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