<p>Property rights and assuming away bequest motives (the Old do no care about the Young).  </p>

<p>Capital of the previous period belongs to the Old, and since they will die at the and of old age, the finite-horizon transversality condition for utility maximization requires that either all assets have been consumed at the time of death, or that they have no utility-enhancing potential. Since the utility function reflects the "more is better" property, assets do have value as consumption down to the last bolt, and since there is no bequest motive, no utility from "leaving something for your children", it follows that the Old will consume all their capital, being utility maximizers.</p>

CC BY-SA 3.0
2017-10-19T21:51:01.400Z
2017-10-19T21:51:01.400Z
Alecos Papadopoulos
<p>In such model (as in most of simple one-good models), capital and output are interchangeable - they are the same good. Thus, capital can be "consumed". Any excess capital that the young do not want will be consumed by the old.</p>

CC BY-SA 3.0
2017-10-19T20:26:37.937Z
2017-10-19T20:26:37.937Z
luchonacho
<p>In Diamond's OLG model, why is capital in the next period equal to total savings by the young in the current period?</p>

<p>What happeend to the pre-existing capital? Surely it doesn't just cease to exist?
I know it belongs to the old who die, but just because they die doesn't mean the capital disappears?</p>

<olg>
In Diamond's OLG model, why is capital equal to saving by the young in previous period?
few
# In Diamond's OLG model, why is capital equal to saving by the young in previous period?

(Asked by: username_0 on 2017-10-19)

In Diamond's OLG model, why is capital in the next period equal to total savings by the young in the current period?

What happeend to the pre-existing capital? Surely it doesn't just cease to exist?
I know it belongs to the old who die, but just because they die doesn't mean the capital disappears?

**Tags:** olg


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## 2 answers

### Answer by username_1 on 2017-10-19. Score: 3

Property rights and assuming away bequest motives (the Old do no care about the Young).

Capital of the previous period belongs to the Old, and since they will die at the and of old age, the finite-horizon transversality condition for utility maximization requires that either all assets have been consumed at the time of death, or that they have no utility-enhancing potential. Since the utility function reflects the "more is better" property, assets do have value as consumption down to the last bolt, and since there is no bequest motive, no utility from "leaving something for your children", it follows that the Old will consume all their capital, being utility maximizers.


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### Answer by username_2 on 2017-10-19. Score: 0

In such model (as in most of simple one-good models), capital and output are interchangeable - they are the same good. Thus, capital can be "consumed". Any excess capital that the young do not want will be consumed by the old.


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