SFB 303 Discussion Paper No. A - 325

Author: Lang, Günther
Title: Dynamic Efficiency and Capital Accumulation
Abstract: This paper answers the question of dynamic efficiency in the framework of the well-known Diamond model, additionally allowing for arbitrary population dynamics and a changing production technology. Arbitrary equilibrium paths, not only steady-states, can be characterized with respect to their efficiency. Furthermore, it will be shown under general assumptions that a Pareto-improving transition from a pay-as-you-go financed state pension scheme to a capital-funded system is impossible, in contrast to opposite claims in the literature. Finally, some light will be shed on the role of capital accumulation in gaining dynamic efficiency.
Keywords: Capital Accumulation, Dynamic Efficiency, Pay-as-you-go systems, Population Dynamics
JEL-Classification-Number: 021, 111, 323, 841, 915
Creation-Date: November 1990
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