A necessary feature for equilibrium is that beliefs about the behavior of other agents are rational. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, _organizational equilibrium_, that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program.
Published in: _International Economic Review_ (Vol. 46, No. 4, November 2005, pp. 1065-1080) https://doi.org/10.1111/j.1468-2354.2005.00360.x.
Previously Working Paper 602, which is not available online.