Abstract
This paper shows that a three-period overlapping-generations model with an inverse-V life-cycle endowment structure can generally restore the first welfare theorem without imposing price-characterization conditions. Even when Walras's law fails, a Walrasian equilibrium may be optimal in a three-period model, depending on the endowment and generational structure. If middle-aged generations have sufficiently high income so that both the old and the young are net borrowers, transactions are generation-by-generation bilaterally balanced, thus ruling out potentially better but unenforceable contracts in equilibrium and ensuring competitive efficiency. When there are imbalances, fiat money, which serves as a medium of intergenerational exchanges, becomes valuable.
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