The Political Economy of Overlapping Generations

Abstract

The formation and maintenance of the institutions of money and a futures market are analyzed in an overlapping generations model with a first period. With money and a futures market the economy converges to the allocation where costly transactions are foregone and marginal products and marginal utilities equated. However, neither institution may be formed, or money may be formed without a futures market. Moreover, stochastic output technologies raise the possibility of persistent recession and depression and of valuable government insurance of the futures market.

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