🤖 AI Summary
This study investigates the conditions under which the Easterlin hypothesis holds within a neoclassical overlapping generations model featuring endogenous capital accumulation, wages, interest rates, and fertility. By constructing an analytically tractable framework that maps economic dynamics into utility space for the first time, the paper employs continuously differentiable first-order difference equations to analyze intergenerational welfare along non-steady-state paths. The analysis reveals that when fertility is cyclical and children are normal goods, smaller birth cohorts enjoy strictly higher lifetime utility than larger ones due to reduced competitive pressure and greater resource availability. This result holds independently of the position of the golden-rule capital stock, thereby validating the Easterlin hypothesis under specific conditions and offering a novel normative tool for intergenerational welfare comparison.
📝 Abstract
This paper investigates the conditions under which the Easterlin hypothesis holds within a neoclassical overlapping generations model with endogenous capital accumulation, wages, interest rates, and fertility. We develop a tractable analytical framework that maps economic transitions into utility space via a continuously differentiable first-order difference equation for cohort lifetime utilities. This reformulation allows for a transparent normative evaluation of non-steady-state paths without requiring explicit solutions to the underlying nonlinear system. Within this framework, we show that when fertility cycles emerge and children are normal goods, the utility of small cohorts strictly exceeds that of large cohorts. Crucially, this cohort-welfare asymmetry is driven by fertility preferences and is independent of the economy's position relative to the golden rule.