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Two-Sided Altruism in an OLG Model with Incomplete Markets and Default
Brazilian Review of Econometrics
View Archive Info| Field | Value | |
| Title |
Two-Sided Altruism in an OLG Model with Incomplete Markets and Default
Two-Sided Altruism in an OLG Model with Incomplete Markets and Default |
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| Creator |
Maldonado, Wilfredo L.
Orrillo, Jaime |
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| Description |
This paper shows the existence of equilibrium and its non-triviality (i.e. there exist, in all periods, both trade and default in the security markets) in an overlapping generation model with incomplete markets. This result is obtained by assuming that agents in the economy exhibit two-sided altruism in the following way: each agent may leave a financial inheritance to his only offspring (forward altruism) in the last period of his life, and in the same period, the descendant may accumulate debts in the name of the agent i.e., the father (backward altruism). Thus, if the descendant does not honor the commitment acquired in the name of his antecessor, he will suffer penalties in his utility function. To avoid the excessive issuance of debt, we shall suppose that the agent (the father) suffers a disutility in proportion to the net value of the debt left to his descendant (the son).
This paper shows the existence of equilibrium and its non-triviality (i.e. there exist, in all periods, both trade and default in the security markets) in an overlapping generation model with incomplete markets. This result is obtained by assuming that agents in the economy exhibit two-sided altruism in the following way: each agent may leave a financial inheritance to his only offspring (forward altruism) in the last period of his life, and in the same period, the descendant may accumulate debts in the name of the agent i.e., the father (backward altruism). Thus, if the descendant does not honor the commitment acquired in the name of his antecessor, he will suffer penalties in his utility function. To avoid the excessive issuance of debt, we shall suppose that the agent (the father) suffers a disutility in proportion to the net value of the debt left to his descendant (the son). |
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| Publisher |
Sociedade Brasileira de Econometria
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| Date |
2006-11-01
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion |
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| Format |
application/pdf
application/pdf |
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| Identifier |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1580
10.12660/bre.v26n22006.1580 |
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| Source |
Brazilian Review of Econometrics; Vol. 26 No. 2 (2006); 291-308
Brazilian Review of Econometrics; v. 26 n. 2 (2006); 291-308 1980-2447 |
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| Language |
eng
por |
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| Relation |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1580/1030
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1580/1031 |
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