Theory-Based Models
Theory-Based Models
Theory-Based Models
A two-period overlapping-generations framework linking saving, population growth, and capital accumulation across cohorts.
Theory-Based Models
An intergenerational route for showing how cohort saving and population growth shape wages, returns, and capital deepening.
Variables
Capital inherited by the next cohort.
Income of the young generation.
Old-age gross return net of depreciation.
Assumptions
Households live for two periods: young and old.
That keeps the intergenerational transfer logic visible.
Competitive factor prices come from a Cobb-Douglas production function.
Wages and returns both move with capital deepening.
Parameters
Share of wage income saved by the young.
Growth in the next generation of workers.
Importance of capital in production.
Technology scale in output.
Capital wear between generations.
Initial capital passed to the next cohort.
Shock presets
Lowers population growth and changes the capital dilution term.
Raises next period capital for the next cohort.