Expected Indirect Utility in an Ergodically Chaotic Overlapping Generations Model

4 November 2015
Publication Type: Working Paper
JEL Code: E30, E41

The chaotic and ergodic equilibrium consumption profiles of a two period lived representative agent overlapping generations model are examined. Given a specific utility function, it is shown that for a typical equilibrium path expected indirect utility of consumption is less than the utility of expected equilibrium consumption. In turn, utility of expected consumption in equilibrium is less than utility at the steady state equilibrium. This result holds for a set of equilibrium maps of positive measure and suggests that stabilisation of the erratic system would bring about an improvement in welfare.

Working paper 559
1 November 2015