ECON 702 Midterm: 702_Fall_F-V_2012
Document Summary
Consider an overlapping generations economy in which one household is born at each period t; t = 0; 1; 2; : : :. The household lives for three periods: t, t + 1, and t + 2. Also, at t = 0, there are one initial old ((cid:0)2) and one initial middle-age ((cid:0)1) households alive. In exchange for a rental fee per-tree pl t paid at time t, the household will get the fruit of the tree: 1 unit of the good in time t + 1, also per-tree. Al t the amount of wealth invested in renting lucas trees: securities issued by the middle-age household. The securities st with price ps t pay 1 t the amount of wealth invested in securities. unit of good at time t + 1. Let us call ab t the amount of wealth invested in the bubble. A = al t + as t + ab t:
