Pareto optimality of the decentralized outcomes

Reference no: EM131167569

Alternative institutional environments

We worked out the Ramsey model in detail for an environment of competitive households and firms.

a. Show that the results are the same if households carry out the production directly and use family members as workers.

b. Assume that a social planner's preferences are the same as those of the representative household in the model that we worked out. Show that if the planner can dictate the choices of consumption over time, the results are the same as those in the model with competitive households and firms.

What does this result imply about the Pareto optimality of the decentralized outcomes?

Reference no: EM131167569

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