Cass criterion
Encyclopedia
The Cass Criterion is a central result in theory of overlapping generations models in economics
. It is named after David Cass
.
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
represents the vector of Arrow-Debreu commodity
prices prevailing in period
then a competitive equilibrium
allocation is inefficient
if and only if
.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. It is named after David Cass
David Cass
David Cass was a professor of economics at the University of Pennsylvania, mostly known for his contributions to general equilibrium theory. His most famous work was on the Ramsey growth model, which is also known as the Ramsey-Cass-Koopmans model.-Biography:David Cass was born in 1937 in...
.
A major feature which sets overlapping generations models in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
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
Competitive equilibrium
Competitive market equilibrium is the traditional concept of economic equilibrium, appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis...
may be not be Pareto optimal.
If
represents the vector of Arrow-Debreu commodityGood (economics and accounting)
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....
prices prevailing in period
then a competitive equilibriumCompetitive equilibrium
Competitive market equilibrium is the traditional concept of economic equilibrium, appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis...
allocation is inefficient
Pareto efficiency
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...
if and only if
.