A Note on Heterogeneity, Inefficiency, and Indeterminacy with Ricardian Preferences
Abstract The main issue raised in this note is the nonequivalence between the infinite-horizon model where agents are infinitely lived and the successive generations model with altruistic finitely lived agents: in the presence of a nonnegative bequest requirement, endowment heterogeneity imposes a revision of the acritical adoption of the infinitely lived agent representation in modern macro-economics. By analysing nonstationary monetary equilibria in a reinterpretation of Townsend's “turnpike” model, this paper shows how the traditional issues of market inefficiency and indeterminacy of overlapping generations models carry over into modern macroeconomics through the natural finiteness of human lives despite “well behaved” Ricardian altruism. Journal of Economic Literature Classification Numbers: D31, D91, E13, E40.