As soon as the problem under consideration requires distinguishing the different stages of life, for example when education choices are modelled, the standard tool that economists employ is the overlapping generations model. It allows to model the different periods of life, such as young age, adulthood and old age. When the set-up includes capital accumulation, it also allows researchers to formalize the development of an economy, relating its growth path to the capital stock, hence the savings behavior of young agents.
In the following book, we analyze in depth the benchmark overlapping generations model with capital.
We hope it will serve as reference in the field for a long time to come !
De la Croix David and Philippe Michel (2002),
A Theory of Economic Growth,
Dynamics and Policy in Overlapping Generations,
Cambridge University Press.
In addition to the research developed in the other sections of this homepage, the tools developed in our book have been used in the following two contexts. First, in the context of applied theory, the overlapping generations model is used to derive the properties of equilibrium when tastes are endogenous. In that case, first period utility depends negatively on the consumption of the parents (the idea is that children get habituated to a living standard while living with their parents). Higher parental consumption leads to increased impatience. In this field, the paper De la Croix and Michel (1999) but also the short note De la Croix (1996) should be read first. Additional papers address optimal education and pension policy.
The models where children inherit tastes from their parents (see the section on habits):
Wealth breeds decline: Reversals of leadership and consumption habits, Journal of Economic Growth, 9, 423-449, 2004 [with L. Artige and C. Camacho].
Growth dynamics and education spending: the role of inherited tastes and abilities, European Economic Review, 45, 1415-1438, 2001.
Altruism and self-restraint, Annales d'Economie et de Statistique, 63-64, 233-259, 2001. [with P. Michel]
Optimal growth when tastes are inherited, Journal of Economic Dynamics and Control, 23, 519-537, 1999. [with P. Michel]
The dynamics of bequeathed tastes, Economics Letters 51, 89-96, 1996.
A study of the dynamics with myopic foresight in the OLG model:
Myopic and perfect foresight in the OLG model, Economics Letters, 67, 53-60, 2000. [with P. Michel]
An answer to an important question, using the Ramsey criterion that Philippe Michel promoted:
How should the allocation of resources adjust to the baby bust?, Journal of Public Economic Theory, 6, 607-636, 2004 [with G. Mahieu and A. Rillaers].
A typical Belgian issue: how changing the type of education funding affect regional convergence ?
Education funding and regional convergence, Journal of Population Economics, 13, 403-424, 2000. [with P. Monfort]
An extension of the OLG model providing an original view on how medical progresses have improved health and life expectancy :
A Theory of Medical Effectiveness, Differential Mortality, Income Inequality and Growth for Pre-Industrial England, Mathematical Population Studies, 16, 1-34, 2009 [with A. Sommacal].
Analysis of the optimal allocations when longevity is endogenous:
On the Golden Rule of Capital Accumulation under Endogenous Longevity, Mathematical Social Sciences, 59, 227-238, 2010 [with G. Ponthière]
How Powerful is Demography? The Serendipity Theorem Revisited,Journal of Population Economics, 25, 899-922, 2012 [with P. Pestieau and G. Ponthière].
Second, in the context of quantitative theory: Models with more than two generations can be used to investigate applied issues, such as the sustainability of fiscal policy, etc … we have built such models with Docquier and coauthors. Bouzazah, de la Croix and Docquier (2002) compare the properties of the model under exogenous and endogenous growth. They next enrich the model by distinguishing between education and experience. They use it to make forecasting and policy experiments (de la Croix, Docquier and Liégeois, 2007) and to understand why skill premium is so much different in France and the US (De la Croix and Docquier 2007). A recent paper incorporates matching (on the labor market) in a simulated OLG model (de la Croix, Pierrard, Sneessens, 2013). It shows that neglecting labor market frictions may seriously bias the analysis of pension reform. These researches has also led to several policy papers, confirming that policy advises and recommendations can be based on sound theoretical foundations.
Policy reforms and growth in computable OLG economies, Journal of Economic Dynamics and Control, 26, 2093-2113, 2002 [with M. Bouzahzah and F. Docquier]
School Attendance and Skill Premia in France and the US: A General Equilibrium Approach , Fiscal Studies, 18, 383-416, 2007 [with F. Docquier].
Aging and Pension In General Equilibrium: Labor Market Imperfections Matter, Journal of Economics Dynamics and Control, 37, 104-124, 2013 [with O. Pierrard and H. Sneessens]