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Asset prices in an exchange economy when agents have heterogeneous homothetic recursive preferences and no risk free bond is available

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  • Roche, Hervé
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    Abstract

    We study a pure exchange economy under incomplete markets where households have heterogeneous homothetic recursive preferences and lending and borrowing are precluded. We fully characterize the properties of the efficient allocations and the equilibrium asset price. The ownership distribution dynamics reveal the emergence of a dominant agent, who after some finite time, remains the only investor that increases asset holdings until asymptotically owning the entire wealth. Investors can be ranked according to a unique parameter that aggregates agents' preference characteristics and we show how time discount rate, attitude towards risk and intertemporal substitution contribute to capital accumulation.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 35 (2011)
    Issue (Month): 1 (January)
    Pages: 80-96

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    Handle: RePEc:eee:dyncon:v:35:y:2011:i:1:p:80-96

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    Web page: http://www.elsevier.com/locate/jedc

    Related research

    Keywords: Recursive preferences Heterogeneous agents General equilibrium Ownership distribution;

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