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  • Population Ageing and Intertemporal Consumption: Representative Agent versus Social Planner

    Author(s)
    Creedy, John
    Guest, Ross
    Griffith University Author(s)
    Guest, Ross
    Year published
    2008
    Metadata
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    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 ...
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    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.
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    Journal Title
    Economic Modelling
    Volume
    25
    Issue
    3
    Publisher URI
    http://www.elsevier.com/locate/econbase
    DOI
    https://doi.org/10.1016/j.econmod.2007.07.007
    Subject
    Applied Economics
    Econometrics
    Banking, Finance and Investment
    Publication URI
    http://hdl.handle.net/10072/22305
    Collection
    • Journal articles

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