Active Intermediation in Overlapping Generations Economies with Production and Unsecured Debt

Date
1997-04-01
Authors
Pingle, Mark
Tesfatsion, Leigh
Tesfatsion, Leigh
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Altmetrics
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Economics
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Economics
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.

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