How long does a generation last? Assessing the relationship between infinite and finite horizon dynamic models

This paper aims at assessing the temporal relationship that exists between the time reference of dynamic models with infinite and finite horizon. Specifically, comparing the optimal inter-temporal plans arising from an infinite-horizon model and a 2-period overlapping generations model in their stationary equilibria, I offer a straightforward way to determine the number of time periods of the former that may form a unit of time of the latter. In this way, I show that the theoretical length of a generation is an increasing function of the discount factor of the optimizing agent and I provide an economic rationale for such a relationship grounded on consumption smoothing.