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    Optimality of the Friedman rule in overlapping generations model with spatial separation

    Martin, Antoine
    Haslag, Joseph H.
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    [PDF] OptimalityFriedmanRuleOverlappingGenerations.pdf (164.6Kb)
    Date
    2003
    Format
    Working Paper
    Metadata
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    Abstract
    Recent papers suggest that when intermediation is analyzed seriously, the Friedman rule does not maximize social welfare in overlapping generations model in which money is valued because of spatial separation and limited communication. These papers emphasize a trade-off between productive efficiency and risk sharing. We show financial intermediation or a trade-off between productive efficiency and risk sharing are neither necessary nor sufficient for that result. We give conditions under which the Friedman rule maximizes social welfare and show any feasible allocation such that money grows faster than the Friedman rule is Pareto dominated by a feasible allocation with the Friedman rule. The key to the results is the ability to make intergenerational transfers.
    URI
    http://hdl.handle.net/10355/2720
    Part of
    Working papers (Department of Economics);WP 03-06
    Part of
    Economics publications
    Citation
    Department of Economics, 2003
    Rights
    OpenAccess.
    This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.
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    • Economics publications (MU)

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