The Transfer Paradox In a Two-Sector Overlapping Generatoins Model: The Duality Approach

In this paper, we apply the duality approach, which is generally used in a static framework, to a two-sector overlapping generations model. Applying the duality approach enables one to determine clearly the welfare effects of a transfer and to explain how the transfer paradox might occur. Especially, we showed that whether the transfer paradox occurs depends on two effects: the dynamic terms-of-trade effect and the capital accumulation effect.