We study natural selection of preferences using a golden-age model with endogenous population. In equilibrium, all agents have preferences with maximum biological fitness given resource constraints and total population is the maximum the environment can sustain. Naturally selected agents follow the golden rule, acting as if they maximize the undiscounted sum of per-capita felicities of current and future generations. Selected preferences and hence work, saving, consumption, and population density vary predictably with environmental differences.

We study Social Security legislated endogenously by altruistic, overlapping generations. Starting from a steady-state equilibrium without Social Security, both generations living in a period can gain from legislation that mandates transfers from young to old in that and all subsequent periods. The Social Security allocation is Pareto-optimal. Later living pairs of generations may lose, but do not amend the law.

In a closed economy with interest taxes at rate τ and with a constant real et rate of interest, the nominal rate of interest should rise by 1/(1 - τ) points for every point rise in the expected rate of inflation. However, a large body of empirical work examines the determinants of nominal interest rates and generally finds that the coefficient of expected inflation is close to or less than one. We model the determination of interest rates in an open economy with taxes. Under plausible conditions, increases in inflation cause the nominal interest rate to rise roughly point for point. This suggests that open-capital-market considerations are central for understanding aggregate economic behavior. The analysis also suggests that inflation is not neutral with respect to the real net interest rate earned by domestic savers or paid by domestic borrowers.

The authors study natural selection of preferences using a golden-age model with endogenous population. In equilibrium, all agents have preferences with maximum biological fitness, given resource constraints, and total population is the maximum the environment can sustain. Naturally selected agents follow the golden rule, acting as if they maximize the undiscounted sum of per-capita felicities of current and future generations. Selected preferences and, hence, work, saving, consumption, and population density vary predictably with environmental differences. Copyright 1990 by American Economic Association.

The authors study social security legislated endogenously by altruistic, overlapping generations. Starting from a steady-state equilibrium without social security, both generations living in a period can gain from legislation that mandates transfers from young to old in that and all subsequent periods. The social security allocation is Pareto optimal. Later living pairs of generations may lose, but do not amend the law. Copyright 1989 by American Economic Association.

In a closed economy with interest taxes at rate τ and with a constant real et rate of interest, the nominal rate of interest should rise by 1/(1 - τ) points for every point rise in the expected rate of inflation. However, a large body of empirical work examines the determinants of nominal interest rates and generally finds that the coefficient of expected inflation is close to or less than one. We model the determination of interest rates in an open economy with taxes. Under plausible conditions, increases in inflation cause the nominal interest rate to rise roughly point for point. This suggests that open-capital-market considerations are central for understanding aggregate economic behavior. The analysis also suggests that inflation is not neutral with respect to the real net interest rate earned by domestic savers or paid by domestic borrowers.