Overlapping Generations

Abstract This chapter presents a discrete time model, the overlapping generations (OLG) model. It starts by presenting the most classic OLG model, wherein each family lives over two periods and overlaps only with the previous family (when young) and the next one (when old). It defines the market equilibrium of this economy, and also reveals that a few equilibria can be Pareto dominated. Additionally, it evaluates the important issue of pensions. The chapter then discusses the two classic pension systems: the fully funded system and the pay-as-you-go system. Lastly, it investigates the dynamics of the economy when agents can accumulate capital and government debt.