What Is the Natural Weight of the Current Old?

Abstract

We consider a simple overlapping generations model with an externality à la Arrow-Romer [1 , 2] and a government with fiscal powers. If it wishes to maximize a criterion depending on the lifelong utility of agents, is there a natural weight for the utility of the current old? We show in a simple example that this weight depends on the specific features of the model, in particular the length of the horizon, and cannot be chosen arbitrarily. Our result has a neat economic interpretation [2] .