The model of intersecting (overlapping) generations ( Samuelson - Diamond model , Engl. Overlapping generations model ) is a model of exogenous economic growth in conditions of perfect competition, the distinguishing feature of which is time discreteness and the relationship of economic indicators with the results of the previous period.
Content
Creation History
In 1958, Paul Samuelson , future Nobel Prize winner in economics, published a relatively simple model of the economy based on Eugen von Boehm-Bawerck 's ideas about the reasons for the existence of interest income on capital . [one]
There are two types of individuals in the economy: young and old. Young - work and receive income from labor. The old ones do not work, they spend their savings. The model was intended to analyze how much savings are made in the economy, how savings turn into investments.
In 1965, Peter Diamond ( born Peter Diamond , also a future Nobel Prize winner in economics) combined the Samuelson model and the Solow model of economic growth, taking into account additions to the Ramsey model [2] . The final model was called the Overlapping generations model , now also the Samuelson-Diamond model.
Model Brief
The model makes a number of assumptions:
- time changes discretely (spasmodically);
- closed economy;
- only one good is produced that can be both consumed and invested;
- factors of production : labor and capital;
- production function with constant returns to scale, ;
- neutral (according to Harrod ) technological progress at a pace : ;
- perfect competition : factors of production are paid for their marginal products ;
- during the period is born individuals;
- constant population growth rate , i.e ;
- each individual lives only two periods (youth and old age);
- in the beginning all the capital is in the elderly, at the beginning of other periods, capital is equal to the savings of the younger generation ;
- the young individual offers a unit of labor ( the labor supply is inelastic ) and receives in-kind wages (in units of goods);
- the rate of capital retirement is set exogenously and is constant, there is no lag of capital investments.
During the period lives young and elderly individuals. In youth, the individual is born and works. The remuneration received for labor is allocated to current consumption and savings. In old age, the individual does not receive new income, spends accumulated savings and dies. There are no altruistic ties between generations: by the end of life, the elderly completely spend their savings, the young do not inherit anything, but they also do not help the elderly.
It is believed that the individual seeks to increase total consumption in the first and second periods of life (objective function), but has a limited resource in the form of the amount of payment for his labor.
See also
- The economic growth
- Solow Model
- Ramsey Model - Cashier - Coopmans
Notes
- ↑ Samuelson PA (1958) An exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money . Journal of Political Economy, 66 (6), pp. 467-482. (eng.)
- ↑ Diamond PA (1965) National Debt in Neoclassical Growth Model . American Economic Review, 5 (5), pp. 1126-1150. (eng.)
Literature
- Tumanova E.A., Chagas N.L. Macroeconomics. - M .: Infra-M, 2004 .-- 400 p. (Textbooks of the economics faculty of Moscow State University named after MV Lomonosov)