Cass criterion

Cass criterion

The Cass Criterion is a central result in theory of overlapping generations models in economics. It is named after David Cass.citation | last1 = Cass| first1 = David | year=1972 |title= On capital overaccumulation in the aggregative neoclassical model of economic growth: a complete characterization | journal =Journal of Economic Theory | volume = 4| pages = 200-223] citation | last1 = Balasko | first1 = Yves| authorlink=Yves Balasko| last2 = Shell| first2 = Karl | authorlink2= Karl Shell | year=1980|title= The overlapping generations model, I: the case of pure exchange without money | journal =Journal of Economic Theory | volume = 23| pages = 281-306]

A major feature which sets overlapping generations models in economics apart from the standard model with a finite number of infinitely lived individuals is that the First welfare theorem might not hold, that is competitive equilibria may be not be Pareto optimal.

If p_t represents the vector of Arrow-Debreu commodity prices prevailing in period t then a competitive equilibrium allocation is inefficient if and only if

sum_{t=0}^{infty} frac{1}{| p_t | } < infty .

References


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