| Abstract: |
The paper develops an overlapping generations model with probabilistic aging
of households. We define age as a set of personal attributes such as earnings
potential, health and tastes that are characteristic of a person's position in
the life-cycle. In assuming a limited number of different states of age, we
separate the concepts of age and time since birth. Agents may retain their age
characteristics for several periods before they move with a given probability
to another state of age. Different generations that share the same age
characteristics are aggregated analytically to a low number of age groups. The
probabilistic aging model thus allows for a very parsimonious yet rather
accurate approximation of demographic change and of life-cycle differences in
earnings, wealth and consumption. Existing classes of overlapping generations
models follow as special cases. |