Population Ageing and Intertemporal Consumption: Representative Agent versus Social Planner

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Title Population Ageing and Intertemporal Consumption: Representative Agent versus Social Planner
Author Creedy, John; Guest, Ross
Journal Name Economic Modelling
Year Published 2008
Place of publication Amsterdam
Publisher Elsevier
Abstract This paper examines the optimal path of consumption over time in the context of population ageing. Older age groups are considered to have relatively greater 'needs', resulting for example from additional health costs. These differences give rise to the concept of the 'equivalent number of persons', as distinct from the population size. Emphasis is given to the difference between a framework involving a representative agent and one in which plans are made by a social planner. The precise conditions under which consumption growth paths are the same under the representative agent and the social planner are established. This equivalence is found to hold only in the case where the social planner's value judgements are such that individuals are considered to be the appropriate unit of analysis. An alternative assumption, in which equivalent persons are regarded as the appropriate units, is found to give rise to a different optimal consumption path. Numerical examples demonstrate the relative orders of magnitude for a range of parameter values. The differences are found to be potentially important. The choice of appropriate consumption units – individuals or equivalent persons – is far from arbitrary since it involves possibly conflicting value judgements. This choice has implications for policies designed to influence the optimal saving rate, such as superannuation policy and the fiscal balance.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.elsevier.com/locate/econbase
Alternative URI http://dx.doi.org/10.1016/j.econmod.2007.07.007
Volume 25
Issue Number 3
Page from 485
Page to 498
ISSN 0264-9993
Date Accessioned 2008-12-09
Language en_AU
Research Centre Griffith Asia Institute
Faculty Griffith Business School
Subject PRE2009-Macroeconomics (incl. Monetary and Fiscal Theory)
URI http://hdl.handle.net/10072/22305
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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