Active Intermediation in Overlapping Generations Economies with Production and Unsecured Debt

"Active Intermediation in a Monetary Overlapping Generations Economy" ( ps,297K) ( pdf,600K ), (with M. Pingle), Economic Report No. 42, Iowa State University, April 1997. Final version appears in Macroeconomic Dynamics 2 (1998), pp. 183--212. Abstract: This study demonstrates that the reason for the failure of the first welfare theorem in the overlapping generations model with production and unsecured debt by Tirole (Econometrica, 1985) is that intermediation is modelled as a purely passive coordination activity implemented by a Walrasian Auctioneer. When intermediation is instead modelled as a contestable activity carried out by a corporate intermediary owned by consumer-shareholders and operated in their interest, every equilibrium is Pareto efficient.