Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099664 | Journal of Economic Dynamics and Control | 2010 | 16 Pages |
Abstract
Feigenbaum et al. (2009) showed in a two-period overlapping generations model that households can improve upon the rational, competitive equilibrium while maintaining competitive factor markets if agents coordinate upon an irrational consumption/saving rule. We generalize their findings to continuous time. The optimal consumption rule with coordination implies a U-shaped lifecycle consumption profile. Rational agents living in a standard competitive equilibrium would need a 4% increase of consumption in every period across the lifecycle to reach the level of utility that can be achieved under coordination. Most of this gain can be achieved with a linear saving rule.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
James Feigenbaum, Frank N. Caliendo,