Dynamic Efficiency in the Gifts Economy
Coauthor(s): Stephen O'Connell.
In the standard analysis of overlapping generations economies with gifts from children to parents, each generation takes the actions of other generations as given. The resulting equilibrium is dynamically inefficient. In reality, however, parents realize that children will respond to higher parental saving by reducing gifts. For a broad class of gift economies, this implicit tax on saving pushes the equilibrium to dynamic efficiency. This result reestablishes the potential relevance of the gift model to the US economy, renders moot an important part of the Ricardian equivalence debate, and provides a motivation for a type of social security system.
Source: Journal of Monetary Economics
O'Connell, Stephen, and Stephen Zeldes. "Dynamic Efficiency in the Gifts Economy." Journal of Monetary Economics 31, no. 3 (June 1993): 363-80.