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Infinite Horizon and Overlapping –Generation models look like the Solow model but in which the dynamics of economics aggregates are determined by decisions at the microeconomic level. Both models continue to treat the growth rates of labor and knowledge exogenous. But the models get the evolution of the capital stock from the interaction of maximizing households and firms in competitive market. As a result, the saving rate is no longer exogenous, and it need not be constant.
The first model is conceptually the simplest. Competitive firms rent capital and hire labor to produce and sell output, and a fixed number of infinitely lived households supply labor, hold capital, consume and save. This model, which was developed by Ramsey (1928), Cass (1965), Koopmans (1965), avoids all market imperfections and all issues raised by heterogeneous households and links among generations. The second model is the overlapping-generations model developed by Diamond (1965). The key difference between the Diamond and the Ramsey-Cass-Koopmans model is that the Diamond model assumes that there is continual entry of new households into the economy.